Lines v Lines Overseas Management Ltd and LOM Securities (Bermuda) Ltd

• Jurisdiction: Bermuda
• Judgment Date: 23 March 2006
• Docket Number: Civil Appeal 2005 No. 11
• Date: 23 March 2006
• Court: Court of Appeal (Bermuda)

In The Court of Appeal for Bermuda

Zacca, P; Nazareth, JA; Stuart-Smith, JA

Civil Appeal 2005 No. 11

BETWEEN:

Brian Lines

Appellant

and

Lines Overseas Management Limited

Lom Securities (Bermuda) Limited

Respondents

Mr x for the Petitioner

Mr x for the Respondent

The following cases were referred to in the judgment:

Ladd v MarshallWLR [1954] 1 WLR 1489

Tournier v National Provincial and Union Bank of EnglandELR [1924] 1 KB 461

Chase Manhattan Bank v FDC Company Ltd [1985] 2 HKC 470

Attorney General v Guardian Newspaper (No. 2)ELR [1990] AC 109

Re a CompanyELR [1989] 1 Ch 477

Woolgar v Chief Constable of SussexUNK [1999] 3 All ER 604

Price Waterhouse v BCCI HoldingsUNK [1992] BCLC 583

Initial Services Ltd v PuterillELR [1968] 1 QB 396

Lion Laboratories Ltd v EvansELR [1985] 1 QB 526

Pharaon v BCCIUNK [1998] 4 All ER 455

Sunderland v Barclays Bank, The Times November 24, 1938

Halford v the United KingdomUNK [1997] 3 BHRC 31

Telecommunications Act 1986, s. 61, 62

Disclosure to Securities and Exchange Commission (foreign entity) — Recorded telephone conversations — Duty of confidentiality — Public interest

JUDGMENT of Stuart-Smith, JA

Introduction

1. This is an appeal by Brian Lines from part of an order made by Bell J, on the16 January 2006, in which he granted part of the relief sought by the Plaintiff, now the Respondent, on an originating summons dated 9 January 2006. By that summons the Respondent sought a declaration as follows:

• (i) Lines Overseas Management Limited is entitled to disclose to the Securities and Exchange Commission of the United States of America recordings of telephone conversations between Brian Lines/Scott Lines and customers, clients and other persons, falling within the scope of a subpoena duces tecum dated 19 April 2004 issued by the Securities and Exchange Commission.

• (ii) Lines Overseas Management Limited and /or LOM Securities (Bermuda) Limited is entitled to disclose to the Securities and Exchange Commission of the United States of America documents of third parties, (including recordings of interviews with LOM personnel made during the BMA investigation of the Sedona transaction) falling within the scope of a subpoena duces tecum dated 19 April 2004 issued by the Securities and Exchange Commission.

Background

2. The proceedings arose from the service of a subpoena issued on 19 April 2004 by the United States of America Securities and Exchange Commission (‘the SEC’) on the Plaintiff/Respondent (‘LOM’ and with ‘LOM’ associated companies the ‘LOM’ group) and served on LOM's Managing Director on 20 April 2004 while he was in the United States undergoing medical treatment.

3. For some time following its service, LOM sought to set aside or stay the subpoena in the United States Courts, whilst the SEC was seeking its enforcement. LOM's attempts were unsuccessful and on 17 January 2006 the U.S. District Judge ordered LOM to comply with the subpoena. It was in anticipation that such an order would be made on the return date, the 17 January 2006, which led LOM to issue its summons on 9 January 2006. The subpoena had listed the documents to be produced in some ten paragraphs some of which related to three companies which were the subject of the SEC investigation and pursuant to which this subpoena had been issued. Those companies were identified in the subpoena as Sedona Software Solutions, Inc (‘Sedona’), SHEP Technology Inc. (‘SHEP’) and Inside Holdings Inc (‘Inside Holdings’). Whilst some of the documents sought were specific to these three named companies others concerned named persons or corporations presumably clients or customers of LOM. There was also a request for ‘all telephone records (including incoming and outgoing calls) for all landlines and mobile phones used by Brian Lines or Scott Lines for the period December 1, 2002 through February 28, 2003’. It is with these documents relating to the telephone conversations of Brian Lines (who was then the President of LOM) that this appeal is concerned. There was also a request for unredacted copies of documents previously provided in redacted form by LOM to the Bermuda Monetary Authority (‘the BMA’) as well as a request for documents which had been requested by the BMA concerning Sedona, SHEP and Inside Holdings and which had not been produced to the BMA. No issue arose in relation to these documents in the appeal.

4. Prior to the hearing before the Judge, the Attorney General applied to be joined in the proceedings on the grounds that the originating summons potentially raised issues of statutory interpretation and constitutional issues of some importance. Bell J ordered they be joined as a party.

5. The evidence before the Judge and before this Court was contained in an affidavit sworn by Scott Lines on 9 January 2006 and one sworn by Brian Lines on 12 January 2006. Mr. Smith, counsel for the Respondents, sought to introduce further evidence before this Court. But since in the main it related to evidence which could have been available at the hearing below, or in so far as it related to matters which had occurred since the hearing, the evidence would not have had an important influence on the result of this case, we did not admit it; the evidence did not satisfy the conditions as laid down in the case of Ladd v MarshallWLR[1954] 1 WLR 1489 for the admission of fresh evidence in the Court of Appeal.

6. The effect of Scott Lines” evidence can be summarized as follows:

• (i) The business of the LOM is that of an international financial services group

• (ii) That although the subpoena refers to an investigation in Sedona, the SEC appeared to be interested in the affairs of SHEP and Inside Holdings as part of the Sedona investigation

• (iii) Of the documents that LOM as in its possession, falling within the terms of the subpoena the majority had already been made available to the SEC through the BMA (though some were in redacted form). That having failed in its attempts to set aside the subpoena LOM now wishes to make the documents covered by the subpoena available to the SEC if they were properly able to do so. LOM had obtained the consent of some of its customer to make the disclosures of some of the documents. It is not clear whether LOM sought consent from some or all of its customers.

• (iv) During the relevant period covering the Sedona transaction LOM operated a system were by all telephone calls (including those on the extensions of Scott and Brian Lines) were recorded. The recordings were made for the sole purpose of resolving trading disputes between LOM personnel and counterparties or clients.

• (v) Neither Scott Lines nor Brian Lines had consented to the making of the recordings; but he was aware, and he believes his brother Brian Lines was also aware, that the recordings were being made. Some of LOM's staff had consented in their employment contracts to the making of the recordings. Some clients had also done so, but not those who were clients before July 2001.

• (vi) In paragraphs 4 and 5 of his affidavit Scott Lines indicated that:

  • (a) Many of the transaction relating to Sedona recorded on Brian Lines telephone, related to Brian Lines personal and private investments in Sedona and related companies, but

  • (b) In relation to some transactions there was a question of raising additional equity capital through private placement. LOM was offered the opportunity to underwrite this private placement through a best effort offering by its subsidiary LOM Capital Limited. Recordings in category (b) were obviously not exclusively relating to Brian Lines private affairs.

7. The Appellant opposed LOM's application, his evidence and grounds of objection are contained in his affidavit sworn on 12 January 2006 which was ordered to stand as a pleading. In summary it was to the following effect:

• (i) He was aware that LOM recorded incoming and outgoing telephone calls received or made by personnel on LOM's trading desk for the sole purpose of insuring that stock trades and instructions received from clients were correctly executed. He was not aware and had never authorized the recording of telephone conversations from his office telephone. I would add here that the Judges appears to accepted this; he did not consider it was inconsistent with what Scott Lines had stated. I consider that we must approach the matter on the basis on what Brian Lines says.

• (ii) His telephone conversations with LOM clients were private and would be expected by the client to remain confidential. Accordingly he had a fiduciary duty to protect their confidences.

• (iii) That some of his telephone conversations were with his legal advisors in relation to the SEC investigation and were therefore subject to legal privilege.

• (iv) That recording of his telephone conversations by LOM contravened section...