Ivanishvili and ors v Credit Suisse Life (Bermuda) Ltd

• Jurisdiction: Bermuda
• Judgment Date: 23 September 2021
• Docket Number: Civil Jurisdiction 2017 No 293 and 2020 No 373
• Court: Supreme Court (Bermuda)

Between:

Bidzina Ivanishvili

Ekaterine Khvedelidze

Tsotneivanishvili

Gvantsa Ivanishvili

Bera Ivanishvili

Meadowsweet Assets Limited

Sandcay Investments Limited

Plaintiffs

and

Credit Suisse Life (Bermuda) Limited

Defendant

[2021] Bda LR 88

Civil Jurisdiction 2017 No 293 and 2020 No 373

In The Supreme Court of Bermuda

Compliance with terms of the discovery order — Whether parent company is to be treated as a third party for discovery purposes — Whether appropriate to make an unless order

The following cases were referred to in the judgment:

Marcan Shipping (London) Ltd v Kefalas [2007] 1 WLR 1874

Michael Wilson & Partners v Sinclair [2015] EWCA Civ 774

Mr J Smouha QC, Ms S Hurrion and Mr H Komansky for the Plaintiffs

Mr S Moverley Smith QC, Mr J Wasty, Ms H Tildesley and Ms L Olander for the Defendant

RULING of Hargun CJ

Introduction

1. By Summons filed on 5 of August 2021 the Plaintiffs seek, inter alia, an order that:

• i. Unless Credit Suisse Life (Bermuda) Limited (“CS Life”) provides discovery of (i) the reports produced by PwC and the supporting documents insofar as they relate to the CS Life Accounts, and (ii) the report by Geissbuhler Weber & Partners AG (“GWP”) on behalf of the Swiss Financial Market Supervisory Authority (“the FINMA Report”), within 14 days, its Defence shall be struck out; and

• ii. Unless CS Life provides copies of its requests and responses to Credit Suisse AG (“the Bank”) as required by paragraph 4 of the Court's Order dated 2 June 2020 (“the Specific Discovery Order”) within 14 days, its Defence shall be struck out.

Background

2. The factual background to these actions is set out in paragraphs 3 to 15 of this Court's Ruling dated 13 September 2018.

3. Briefly, the Plaintiffs' claim against CS Life is for losses suffered by two unit-linked life insurance policies (“the Policies”), which were issued to Meadowsweet Assets Limited and Sandcay Investments Limited, the Sixth and Seventh Plaintiffs (as policyholders) in 2011 and 2012 respectively. The First to Fifth Plaintiffs are the ultimate beneficiaries of the proceeds of the Policies, as the beneficiaries of trusts within which the Policies are held.

4. The Plaintiffs allege that they entrusted US $755 million to CS Life by way of lump sum insurance premiums (“the Policy Assets”). The Policy Assets were invested in accounts with Credit Suisse AG (“the Bank”) in the name of CS Life (“the CS Life Accounts”). The Plaintiffs allege that in 2015 they discovered unauthorised, imprudent and fraudulent trading on the CS Life Accounts resulting in huge losses to the Policy Assets.

5. In these proceedings the Plaintiffs assert that CS Life owed the Plaintiffs various contractual, fiduciary, statutory and common law duties, and that CS Life breached those duties resulting in losses estimated to be in the region of US $400 million.

6. By its Ruling dated 11 February 2020 (“the February 2020 Ruling”) the Court determined that, in relation to its own documents, CS Life was required to produce documents evidencing investigations and reports into the collapse in value of the Policy Assets in 2015 including the PwC Reports commissioned by the Bank. The Court required CS Life to confirm that it has searched for the relevant documents evidencing investigations and reporting of the collapse in value of the Policy Assets in 2015.

7. In relation to the documents of the Bank the Court determined that as a consequence of the duty to account under Article 400 of the Swiss Code of Obligations (“the Code”), subject only to the issue of relevance, CS Life has the power to call the Bank to provide and the Bank has an obligation to provide all documents evidencing investigations and reports into the collapse in value of the Policy Assets in 2015.

8. These determinations by the Court are reflected in the Specific Discovery Order which provides:

AND UPON THE COURT FINDING that as a matter of the duty to account under Article 400 of the Swiss Code of Obligations, subject only to the issue of relevance, the Defendant has the power to call for Credit Suisse AG to provide and Credit Suisse AG has an obligation to provide all documents within the categories set out below:

…

Documents of the Bank (Credit Suisse AG)

3. Confirm, by way of the Affidavit referred to at paragraph 1 of this Order, that the Defendant has required Credit Suisse AG pursuant to Article 400 to provide the following documents and categories of documents to the Defendant and provide copies of all letters of request and responses received from Credit Suisse AG:

…

3.4 Documents evidencing investigations and Reports into the collapse in value of the Policy Assets in 2015 including:

(a) PwC Reports commissioned by Credit Suisse AG and the supporting documents, insofar as they relate to the CS Life Accounts;

(b) Any documents produced in the course of Credit Suisse AG's investigation into the conduct of Patrice Lescaudron, insofar as they relate to the CS Life Accounts;

(c) Any audits conducted in relation to the performance of the Policies and/or the CS Life Accounts; or

(d) Documents dated between 1 September 2015 and 31 December 2016 relating to the collapse in the value of Policy Assets; margin calls on the CS Life Accounts; fraudulent conduct on the CS Life Accounts; “Project Dino”; the reports produced by the PwC and surrounding documentation (including correspondence, whether by email or otherwise), any restructuring of the investments in the CS Life Accounts and/or other remedial action taken in relation to the CS Life Accounts.

9. CS Life appealed the February 2020 Ruling to the Court of Appeal and in particular the finding that Article 400 of the Code empowers CS Life to require the documents set out in paragraph 3.4 of the Specific Discovery Order and that the Bank is obliged to provide the said documents. In its Judgment dated 7 October 2020 the Court of Appeal dismissed CS Life's appeal in relation to this issue and confirmed the scope of Article 400 as set out in the February 2020 Ruling and as reflected in the Specific Discovery Order.

Application for an unless order in relation to the PwC Reports and related documents

10. In relation to this application CS Life contends that the Plaintiffs are only entitled to discovery of the relevant documents within CS Life's possession, custody or control. CS Life argues that as the Bank is a third party, what documents are, or are not, in CS Life's power is a matter subject to practical limitations. It argues that the PwC Reports and the FINMA Report are not documents within CS Life's possession, custody or power save, in relation to the FINMA Report, to the extent that the First Plaintiff already has it but is embargoed from discovering or using it.

11. Mr Moverley Smith QC argues that the key point is that CS Life does not have access to the PwC Reports and that whilst it has the power to call on the Bank for the PwC Reports, that power is limited, constrained by the Bank's response to the request.

12. Mr Moverley Smith QC also relies upon the letter of Schellenberg Wittmer on behalf of the Bank dated the 20 September 2021 where it is said that the PwC Reports are subject to attorney-client privilege in favour of the Bank and that supervisory privilege and confidentiality considerations prevent the Bank from providing the FINMA Report to CS Life.

13. It appears to the Court that the analysis advanced by Mr Moverley Smith QC may well be compelling if the position of the Bank in this case was strictly that of third party but the position of the Bank is not such in this case. As the Court of Appeal found in its Judgment dated 7 October 2020, this is an exceptional case “where responsibility for the discovery process has, in effect, been delegated on a wholesale basis” by CS Life to the Bank itself.

14. Furthermore, there are other compelling reasons, as correctly submitted by Mr Smouha QC, why the Bank cannot properly be characterised as a third-party for the purposes of complying with the discovery obligations of CS Life, as set out in the Specific Discovery Order:

• i. Not only is CS Life a 100% subsidiary of the Bank, it is an account holder with the Bank in relation to the CS Life Accounts. As such, there is a client/banker relationship between the two Credit Suisse entities. CS Life opted to entrust the premia to the Bank under the Policies with the Bank.

• ii. CS Life delegated and/or outsourced significant aspects of its insurance business to the Bank by entering into a suite of agreements. Under these arrangements CS Life delegated to the Bank the sale of LPI Policies on behalf of CS Life pursuant to the Collaboration Agreements; CS Life's due diligence (KYC) responsibilities pursuant to the Delegation Agreements; inventory management and servicing of CS Life's insurance business (including underwriting of insurance policies, management or policies, and issuing invoices) pursuant to the Outsourcing Agreements; and managing policyholders' assets pursuant to the Asset Management Agreements. CS Life's pleaded case is that the Bank provided asset management services in respect of the Policy Assets held in the CS Life Accounts.

• iii. CS Life largely relied on Bank employees to perform its functions, which conducted business through generic Credit Suisse email addresses, worked out of the Bank's offices in Switzerland and used the Bank's IT systems.

• iv. CS Life opted to store its documents in Switzerland on the Bank's servers, and to use the Bank's IT technology to run its Bermudian insurance operations.

• v. The Bank directs CS Life's economic activity and has been directing and controlling this litigation.

15. In relation to the Bank's role in this litigation it is to be noted that upon discovery of the collapse in the value of the Policy Assets in 2015 it was the Bank which was directly dealing with Mr Bidzina Ivanishvili, the First Plaintiff, and was offering to share with him the...