Disclosure of documents in fraud claims

Reproduced with permission from Fraud Intelligence. This article was first published on Fraud Intelligence’s website here, on 23 May 2022.

Documentary evidence is at the heart of complex fraud cases, which often transcend national borders. But while it is frequently assumed that approaches to disclosure will be broadly similar, there can be significant differences between countries’ legal regimes.
Jon Malik and Ben Boddington of Simmons & Simmons discuss these challenges in cross-border civil fraud disputes and also ask – how much is too much or too little disclosure?

When litigating complex fraud claims, the documentary evidence is typically both critical to the case and immensely challenging to navigate from a legal and practical perspective. In this article, we explore some of these challenges and how the rules on the disclosure of documents (also called ‘discovery’ in some legal systems) have been designed to address them in a number of common and civil law jurisdictions.

Except in the most straightforward cases, fraud is difficult to prove – due to the elements of dishonesty and concealment inherent in such wrongdoing, as well the fact that in a number of jurisdictions such cases are subject to more exacting legal rules to recognise the serious nature of alleging fraud. In such circumstances, documents will usually be essential to proving the fraud, particularly where key witnesses may often be implicated in the alleged wrongdoing and their testimony therefore treated with caution. As one of England’s most famous judges said in a frequently-cited case: “Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities.” ¹

At the same time, the body of potentially relevant documents in complex fraud litigation is invariably vast and frequently drawn from a variety of sources. Assembling, producing and sifting through the documentary record – whether to find that ever-elusive ‘smoking gun’ or more often to stitch together a well-disguised fraud through numerous pieces of evidence – can be logistically daunting and fraught with legal complexities: such cases typically proceed many years after the alleged wrongdoing, for instance; they often require significant amounts of documentary evidence (most of it electronic data) from multiple jurisdictions, various third parties and/or related legal proceedings; there may also be tricky privilege or other legal issues to contend with; and in fraud claims, all of this will be taking place in circumstances where a claimant (called the ‘plaintiff’ in some jurisdictions) will have an inherent distrust of the allegedly fraudulent defendant, which can often lead to skirmishes over the scope of disclosure. As a result of these challenges, and while technology and other logistical solutions can help, the practicalities and costs of dealing with documents in litigation can be prohibitive (particularly in jurisdictions with more expansive disclosure regimes).

At their core, many difficult questions about disclosure are really about different aspects of one overarching question: how much is too much or too little disclosure? In other words, what is the right balance to be struck between the need to ensure that enough evidence is produced so that genuine wrongdoing can be brought to light on the one hand, and the desire to ensure that the complexities and costs of disclosure are proportionate on the other? These are problems that apply equally to the parties and courts in every individual case and to those responsible for designing the disclosure rules that judges and litigants must follow.

Different legal systems have approached these issues in different ways. This article considers some of the challenges parties face when dealing with disclosure in large fraud claims in England & Wales, the United States, Ireland and Switzerland, along with some of the tools available to overcome them in those jurisdictions.

1. Approaches to disclosure

Litigating parties, and even lawyers, often assume that approaches to disclosure, particularly in Western or European jurisdictions, will be broadly similar. However, this is far from true and there can be a number of significant differences between disclosure practices in different jurisdictions.

Common law

England and Wales
The Disclosure Pilot Scheme, which applies in the Business and Property Courts that hear most commercial disputes, came into force on 1 January 2019, replacing Part 31 of the Civil Procedure Rules. Aiming to respond to widespread concerns expressed by court users, the legal profession and the judiciary regarding the perceived excessive costs, scale and complexity of disclosure, the scheme made dramatic changes to the long-established disclosure process. The overriding objectives of the scheme are to make disclosure less onerous on the parties, more proportionate and tailored to the individual circumstances of each case.

Under the scheme, there are now three stages of disclosure. First, the parties are required to identify and agree a list of issues for which documents will be disclosed. Second, ‘initial disclosure’ of key documents so that other parties can better understand the case they have to meet, a ‘light touch’ approach specifically intended to address concerns around excessively ‘front-loading’ disclosure at the beginning of a claim. Third, ‘extended disclosure’ occurs once pleadings have concluded. This latter process is governed by a menu of ‘disclosure models’ that provide for a spectrum of orders to be made on each issue for disclosure – ranging from Model A (no disclosure on a particular issue) to Model E (very broad search-based disclosure).

In applying the pilot scheme rules, the parties must comply with a number of duties. Key duties include a duty to preserve documents(including those held by former employees and third parties), a duty to disclose all known adverse documents (even if a party hasn’t been asked to do so) and a duty to consider the use of technology to process and review data. The duty to disclose known adverse documents, in particular, goes some way to allay parties’ concerns that another party may try to hide unhelpful evidence – if a party knows that it has documents that could harm its case (after conducting reasonable checks), it has a continuing obligation to disclose them at any stage of the proceedings.

United States
In the US, there are five basic forms of discovery: depositions (oral testimony under oath), interrogatories, requests for production of documents, physical and mental examinations, and requests for admission. Depositions and document requests (by subpoena) are available against both parties to the litigation and non-parties. Information within this scope of discovery need not be admissible in evidence to be discoverable. Discovery is a party-driven process, with the court mostly getting involved to resolve disputes. There is nothing resembling the ‘front-loaded’ disclosure models used in England and Wales. While courts consider many of the same factors as English judges – including proportionality – they tend to do so on an ad hoc basis as and when specific disputes are brought tot hem by the parties. On the whole, discovery is generally more extensive in US proceedings that in English litigation.

Ireland
By contrast, Ireland operates a request-based approach to discovery. The reasonableness of a discovery request is determined by the test of relevance, necessity and proportionality. ² Ireland’s disclosure regime allows for a litigating party to request any document relating to the matter that may be to the benefit of their case, or conversely to the detriment of the other side, if relevant and necessary for the proper conduct of the proceedings. The applicable court rules confer on the parties an obligation to agree to the relevant categories for discovery and to give detailed explanations as to why those categories are necessary and relevant. If discovery is not agreed, then either party is at liberty to apply to the court for relief, with the onus resting on the requested party to demonstrate that the request is too onerous by reference to the aforementioned test of relevance, necessity and proportionality.

As costs are always a contentious point in litigation, the courts have placed special emphasis on proportionality in making decisions as to discovery. ³ The Irish courts were also early to approve the use of Technology Assisted Review in discovery, ⁴ with costs and the complexity of electronic discovery in mind.

Ireland diverges from the UK approach adopted with the introduction of the Disclosure Pilot Scheme. Ireland’s focus on the production of all relevant documents that may assist or be of detriment to a litigant’s case by reference to categories is attractive on many levels, particularly in a fraud case where wide-ranging discovery is often necessary due to the complexity of the fraud.

Civil law jurisdictions

Switzerland
As a general rule, pre-trial discovery is not a recognised concept under Swiss law. In order to obtain evidence in Swiss civil proceedings, a party must first commence a civil claim. However, even after filing a civil claim, disclosure duties and tools remain very limited and disclosure requests can only target specific pieces of evidence or information.

In contrast to civil proceedings, Swiss criminal proceedings offer wider investigatory measures allowing a plaintiff to obtain evidence at any stage of the investigation – for example, by requesting searches or the seizure of documents, data or assets. This means that, although the prosecution are the ones eventually deciding on the direction of criminal proceedings, often the best way for victims of fraud or other criminal offences to gather and secure evidence is by filing a criminal complaint. Once admitted as a plaintiff in criminal proceedings, a victim is entitled to a criminal file with the right to use evidence collected in support of any further proceedings. In this respect, while plaintiffs will nonetheless have to prove the basic elements demonstrating the existence of an offence, the burden of proof is lower than that required to support civil proceedings.

2. Obstacles to broad disclosure

Despite these sophisticated and well-developed approaches to disclosure that have been adopted, no matter where a party is looking to secure the production of documents from the other side in fraud proceedings, they are facing an increasing number of legal and practical obstacles. Again, the extent and nature of these challenges will depend considerably on the jurisdiction in question, but we have considered a few of the more pronounced obstacles below.

Big data
The volume of data that is potentially disclosable in the context of complex disputes has increased exponentially in the past several years and shows no signs of slowing down. It is estimated that new data will grow annually at a compound growth rate of nearly20 per cent for the next three years. In 2020, for example, every person on the planet generated 1.7 megabytes of data per second. ⁵ In addition to the more traditional IT data systems, which already store large quantities of data, new technologies and applications continue to fuel this growth. Every day, WhatsApp users exchange approximately 100 billion messages, from a user base of two billion people in 180 countries. ⁶ The sheer volume of data which a company produces that may be relevant to a fraud claim presents considerable challenges for litigants, both in relation to identifying the extent of data capture that is required and the cost of managing the disclosure process. For defendants in a sizeable fraud action (at least in many common law jurisdictions), the data set from which disclosure is to be provided can often comprise many millions of documents. For claimants – even those armed with the technology to assist them – establishing a fraud will usually require trawling through vast quantities of documents in order to uncover evidence of wrongdoing.

Privilege and data protection laws
The challenges of the disclosure process are also often compounded by complex and cumbersome privilege laws, which vary from jurisdiction to jurisdiction. The application of privilege can frequently come under challenge in fraud cases, in which claimants will typically be wary of any attempt to withhold relevant information (whether under the guise of legal privilege or otherwise). In English law, for example, documents or communications created to further a fraud will lose any privilege that might otherwise have attached to them, although proving the fraudulent purpose can itself often be demanding. The challenges of navigating the application and scope of privilege can be conceptually complicated and practically burdensome. When dealing with a large volume of information, this will have serious cost implications.

There are also a number of data protection considerations to take into account in the context of a fraud claim. Parties often find dealing with the concepts of personal data and ‘sensitive personal data’, which have always been interpreted widely under UK and European Union data protection laws, particularly onerous. This presents a very real risk of disclosing personal data that is ‘irrelevant’ or ‘non-responsive’, and therefore unnecessary to disclose, which can leave disclosing parties open to legal challenge from the subjects of the personal data. While the risk of disclosing such personal data can be mitigated by way of redaction, this process is difficult to achieve consistently and again can have serious cost implications even with the assistance of technology.

Swiss banking secrecy
Although the position has changed in recent years, banking secrecy remains protected under Swiss law, which makes disclosure of banking clients’ confidential information a criminal offence. This can sometimes prove to be an obstacle to disclosure, predominantly in civil proceedings, where the claimant or concerned third party has not been duly released of their banking secrecy duty.

Banking secrecy is less of an obstacle in criminal proceedings as the prosecutor or the court can compel parties and non-parties to testify or produce evidence unless they can prove that their interest to maintain banking secrecy supersedes the public interest to establish the truth (which is recognised in very few cases).

Effectiveness of a request-based approach to discovery
Legal commentators in Ireland vary in opinion as to whether Ireland’s discovery regime is too broad and whether by requiring parties to engage in agreeing categories of discovery, an increase in interlocutory discovery applications arises. Commentators have felt that the focus on categories of discovery rather than on the issues in dispute when determining discovery can lead to an over-focus on the category and whether a document falls within a particular category, and so a lot of time goes into agreeing the wording of the categories. Where parties cannot agree categories of discovery (which once agreed, have the same status as an order of the court) they are at liberty to apply to the court for relief.

3. Alternative disclosure tools

Given the extent of the obstacles facing a party when trying to obtain documentary evidence from an opposing party, some jurisdictions have facilitated the development of a range of legal tools, outside of the ‘main disclosure event’ in litigation, that can assist parties looking to establish their claim.

Common law

England and Wales
In England and Wales these legal tools include (among various others):

• Asset disclosure in support of a worldwide freezing order: when a freezing order is granted by the court, it will generally make a disclosure order against the defendant as well. This typically requires that the defendant disclose a list of all their assets globally within a short space of time, enabling the claimant to take steps to prevent the dissipation of assets. Where an asset disclosure order is made in support of a freezing order, a claimant can also insist that a defendant answers any questions necessary to trace misappropriated assets. Freezing orders have, however, been described as one of the law’s “nuclear weapons”, and so a claimant must bear in mind that they will need to satisfy stringent legal and commercial requirements in order to be granted one. ⁷
• Search and seizure orders: where there are legitimate concerns that evidence will be hidden, altered or even destroyed, a court may grant a search order, allowing one party’s solicitors to search the premises of the other party and seize specified evidence. Again, this is a draconian measure and so there are a number of legal protections in place to prevent its arbitrary deployment.
• Norwich Pharmacal orders: NPOs can be granted in relation to a third party that is not itself a party to the proceedings. These can be issued where a third party – for example, a bank or a telephone service provider – is likely to have documents or evidence that speak to the identity of the defendant or the alleged fraud. This can be a particularly useful tool, as third parties are less likely to resist an NPO application than a defendant given that they are unlikely to have a vested interest in the claim.

Civil law

Switzerland
Under Swiss law, the claimant carries the burden of proof in alleging the facts in support of its claim in civil proceedings. The Swiss Civil Procedure Code (SCPC) allows the claimant to obtain evidence after the filing of a civil claim through civil production orders. The court may issue these orders to the counterparty or to third parties in order to establish the legally relevant facts of the dispute. However, open-ended requests for documents are not permitted and the claimant has to identify specifically the evidence and documents it requests.

As an exception to the general rule, the SCPC allows for the precautionary seizure of evidence before civil proceedings have commenced, where the applicant can credibly demonstrate that the evidence is at risk of being destroyed or hidden, or that it has a legitimate interest in obtaining the evidence pre-trial. The aim is to assess the chances of a successful claim and/or quickly to secure evidence that is at risk in view of a potential civil action.

As previously outlined, the initiation of criminal proceedings can be a more effective channel through which to access evidence. This is considered in more detail below in relation to the use of evidence gathered during a criminal investigation in parallel civil proceedings.

4. Disclosure in parallel criminal and civil proceedings

When large-scale fraud occurs, this can give rise to multiple legal proceedings, including civil, criminal, regulatory, insolvency and other types of proceedings, all flowing from the same or similar events. In such scenarios, documents disclosed or produced in one set of proceedings will typically be highly relevant to other related proceedings. Accessing and managing documentary evidence in parallel proceedings can both be highly valuable to a party’s case and present significant challenges.

Common law

England and Wales
English law generally prohibits documents disclosed in civil proceedings from being used for the purposes of other proceedings, unless certain exceptions apply or permission is obtained from the court. The meaning of ‘use’ in this context is very broad and extends even to reading a document. To obtain the court’s permission to review or otherwise use documents disclosed in other civil proceedings, special circumstances must be shown to justify such use. Similar principles apply to the use of documents disclosed to a defendant in criminal proceedings (although not to the prosecution) and other restrictions may apply in other types of proceedings. This can raise a range of practical challenges for a party that wishes to access or deploy documents from other related proceedings.

United States
The position in the US is somewhat similar to English law. In parallel civil and criminal cases, a stay of the civil case is typically granted to protect grand jury secrecy and avoid prejudicing the criminal investigation (in part because defendant discovery in a federal criminal case is more limited than in civil cases).

Civil law

Switzerland
Swiss law allows for a civil claim to be brought before the criminal authorities together with a criminal complaint. This has several advantages, including the ability to file the claim against an unknown party or to claim damages without paying court fees. Furthermore, Swiss prosecutors have a duty to gather evidence that relates to civil claims and to seize assets that could be the proceeds of crime or which could cover a possible compensatory claim. In gathering this evidence, Swiss prosecutors can employ the tools of a criminal investigation, such as searches, production orders, freezing orders or rogatory letters to foreign authorities and hearing of witnesses. The plaintiff can request the use of investigation measures to demonstrate the existence of the offence as well as to support its own civil claim. It can also participate in the gathering of evidence conducted by the prosecutor and in particular ask questions during witness hearings.

If certain conditions are met, the plaintiff can access a criminal file and take copies of it to substantiate its civil claim in parallel proceedings. Indeed, unless the prosecutor orders restrictions on the use of the documentation (which can generally only bead dressed to the plaintiff and not the accused and only for a limited period of time), the documentation collected can be freely used for the purpose of other proceedings. The only restrictions are blocking statutes such as article 271 of the Swiss Criminal Code, which prohibits the unlawful gathering of evidence for a foreign authority.

5. Obtaining documents from overseas or for use in overseas proceedings

Large fraud actions are also typically international in scope, with enforcement and asset recovery taking place in multiple jurisdictions. To build an effective strategy, it will often be necessary to look to other jurisdictions to obtain evidence.

Common law

England and Wales
A party’s obligations to disclose documents in English litigation generally extend to all documents within the party’s control, regardless of where in the world the documents might be held. If the documents in question were disclosed in foreign legal proceedings, however, it will be necessary to check whether there are any restrictions on the use of those documents in the foreign jurisdiction.

Obtaining disclosure from non-parties abroad is less straightforward still and typically requires the English court formally to request that the foreign court in the jurisdiction in which the non-party is based require disclosure under the foreign court’s own procedures. The requirements to be met in each case will depend on the jurisdictions involved.

In the reverse scenario, where documents disclosed in English proceedings are needed for use in overseas proceedings, the English court’s permission will be required or certain exceptions will need to be met (as in the case of parallel domestic proceedings as described above).

United States
Section 1782 of title 28 of the US Code provides that “[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal”.

While the US courts are divided on whether section 1782 can be used to compel a person subject to US jurisdiction to produce documents that are located abroad, but within the control of that person, the trend is to allow it. For example, the 11th Circuit Court of Appeal allowed discovery under section 1782 of documents held in the Bahamas. ⁸ This lawsuit related to a divorce and division of marital assets in Russia. The claimant asserted that her ex-husband was hiding marital assets in foreign corporations in various jurisdictions. She filed a claim in Georgia under section 1782 seeking discovery from Trident Corporate Services that she believed would reveal her ex-husband’s beneficial ownership of an associated Bahamian corporation and the court granted the order. The 11thCircuit affirmed that there is no per se extraterritorial limitation on 1782 discovery available through section 1782. The court then reviewed whether the district court had either applied the wrong legal standard or made factual findings without sufficient record evidence in finding that Trident had sufficient “control” over the requested documents to order their production. They found that despite the Atlanta Trident entity’s denial of any “legal right” to documents or information from its associated foreign entity in the Bahamas, “it is apparent that [the entities] could not possibly perform their intended functions for… clients absent the ability to obtain information and documents from [other] members”. The court affirmed that this was “significant ‘circumstantial evidence’[that] established that Trident Atlanta had ‘control’ over responsive documents in the physical possession or custody of Trident Bahamas”.

The 2nd Circuit, which is important because it covers New York, recently reached the same conclusion, holding that because “§ 1782authorizes discovery pursuant to the Federal Rules of Civil Procedure” and the “Federal Rules of Civil Procedure in turn authorize extraterritorial discovery so long as the documents to be produced are within the subpoenaed party’s possession, custody, or control,” it follows that“§ 1782 likewise allows extraterritorial discovery”. ⁹ In other words, “the location of responsive documents and electronically stored information – to the extent a physical location can be discerned in this digital age – does not establish a per se bar to discovery under § 1782”. ¹⁰

Both the 11th and 2nd circuits have also held that section 1782 does not prevent an applicant who has obtained discovery under the statute with respect to one foreign proceeding from using the discovery elsewhere, unless the district court orders otherwise. This precedent was established in the Glock case. The Glock court held that “parties may use any evidence they lawfully possess,” and that if a plaintiff were to “obtain [ ] documents in discovery from a defendant in one case, nothing precludes her from using that evidence in a wholly separate lawsuit against the same defendant or a different party”. ¹¹

Civil law jurisdictions

Switzerland
Letters rogatory based on the Hague Convention and requests for mutual legal assistance in criminal matters are widely used for fraud proceedings in Switzerland and for inbound requests for documents from foreign courts. There are notable differences between how these requests are treated in the context of civil and criminal proceedings. For example, in criminal proceedings, such requests can be broader and target documents that are unknown to the parties and to the foreign authorities. When Switzerland is acting as a requested state receiving a foreign request, it will provide the necessary assistance and also communicate information that was not specifically requested if this information proves to be relevant for the foreign investigation. By way of example, Swiss authorities may communicate bank statements of accounts that are not targeted by the foreign authority but are related (notably, due to the existing flow of funds) to the ones included in the request. Responding to inbound requests for documents from foreign courts is generally a lengthy process, because it is possible for interested persons to contest the proceedings and oppose the transmission of documents and information.

6. Key takeaways

Accessing and managing documents is going to remain one of the most difficult aspects of a fraud claim to navigate for the foreseeable future, no matter where the documents are located. In the common law jurisdictions we have explored, disclosure is likely to be expensive, time-consuming and include enormous quantities of data. In Switzerland, while spiralling costs can be less of an issue, a party’s ability to access sufficient evidence to grapple with complex fact patterns is much more limited, at least in civil proceedings.

As may be expected, whether and how these challenges can be addressed in each case will depend on the particular circumstances of the fraud concerned and the specific facts of the case more broadly. Nonetheless, the following strategies should be taken into account regardless of the particulars:

• Establish at the outset of a claim the jurisdictions in which the relevant conduct took place and where the evidence is located. Once identified, seek local legal advice on the disclosure rules and practices in each of those jurisdictions as they are likely to vary significantly.
• Parties should not always use the same approach to document management activities. Different challenges and circumstances will affect decision-making as to the most efficient and effective approach.
• Be mindful of data protection, privilege and other legal protections (such as Swiss banking secrecy laws) that can apply differently to the same classes of document in various jurisdictions. In particular, recognise the particular classes of documents where claims to privilege may be vulnerable to challenge in the relevant jurisdictions.
• Understand the risks related to large-scale fraud involving parallel legal proceedings. There will be variances in the legal and procedural rules applicable to disclosure in each of the proceedings and navigating the rules effectively can be both complex and highly valuable.

¹ Robert Goff LJ in Armagas v Mundogas (The Ocean Frost) [1985] 1 Lloyd’s Rep 1, page 57
² Compagnie Financiere du Pacifique v Peruvian Guano Co 11 QBD 55
³ CRH v Framus [2004] 2 IR 20
⁴ IBRC v Quinn [2011] 5843P Unreported, 3 March 2015
⁵ https://techjury.net/blog/how-much-data-is-created-every-day/#gref
⁶ www.thinkimpact.com/whatsapp-statistics.
⁷ Bank Mellat v Nikpour [1985] FSR 87
⁸ Sergeeva v Tripleton International 834 F.3d 1194 (11 Cir. 2016)
⁹ RE Del Valle Ruiz, 939 F.3d 520, 524, 533 (2 Cir. 2019)
¹⁰ Ibid.
¹¹ Glock v Glock Inc, 797 F.3d 1002, 1007 (11 Cir. 2015)