Before: The Hon. Mr. Justice Hirst
 
 

 
 
10 June, 1992

HIRST J

These are applications by a number of banks for their cases to be selected as lead actions. In all cases but one the application is opposed by the defendant local authority and, where applicable, by the third parties. The exception is Warburgs v. Birmingham where there is a joint application for selection by both sides.

The details of the cases are as follows, and I am taking this from the Schedule, Flag 4 of File 5: Kleinwort Benson v. South Tyneside (1991/688) where the net principal sum claimed amounts in total to nearly £1.6 million and there are a large number of third parties who are other local authorities in the North East. Kleinwort Benson v. Sandwell (1991/720), where the net principal sum claimed amounts to just over £360,000, with no third parties. Kleinwort Benson v. Merton (1991/722) where the net principal sum claimed amounts to just over £220,000, with no third parties. Warburgs v. Birmingham, where the net principal sum claimed amounts to just over £5 million, with no third parties.

Then there are the three Chemical Bank cases: first of all, Chemical Bank v. Welwyn Hatfield (1991/215), where the net principal sum claimed amounts to almost £3 million, with Haringey as third parties: Chemical Bank v. Sandwell (1991/213), where the net principal sum claimed amounts to over £7 million, with Haringey and Camden as third parties: Chemical Bank v. Richmond (1991/214), where the net principal sum claimed amounts to £3.7 million, with Haringey as third parties. Morgan Grenfell v. South Tyneside (1991/363), where the net principal sum claimed amounts to over £700,000, and again there are a large number of third parties who are other local authorities in that area of the North East. Morgan Grenfell v. Welwyn Hatfield (1991/366), where the net principal sum claimed amounts to almost £2 million, with Islington as third parties, and coupled with that by agreement, Morgan Grenfell v. Welwyn Hatfield (1991/1440), with Hackney as third parties. Finally West Deutsche Landesbank Centrale v. Islington, where the net principal sum claimed amounts to £1.1 million, with no third parties.

On the present information available there are over 200 outstanding swaps cases involving several dozen banks and a greater number of local authorities. By and large the proposed lead cases are among the most substantial in terms of the amount at stake. This is a major factor in the banks present proposals, coupled with the fact that between them these suggested lead cases cover the main issues of principle which arise.

As already stated in previous judgments, far and away the most important issue of principle, and one which arises in every outstanding case, is whether the banks' various restitutionary claims are sound in law.

The first question I have to decide is whether it is appropriate to make a further order in the light of the failure of the previous order to produce a concluded judgment. Apart from Westminster, who in the end did not press their dissent very strongly, all submissions addressed to me from both sides during the course of the hearing were in favour of such selection, and I have no doubt in my own mind that it is appropriate, since it is unthinkable, save perhaps as a last resort, that such a very large number of cases should come forward for trial in disorganised fashion. I am therefore satisfied that it is appropriate to make an order.

Before coming down to the details, it is convenient to consider the main arguments of principle which have been addressed to me from both sides. Taking the banks' side first, the greatest possible stress was laid by counsel for the various banks on the fundamental right of a plaintiff to have his case tried unless there are compelling reasons to the contrary. As a corollary, it was submitted on behalf of the banks that the local authority defendants have no right to have their cases delayed, and the banks even went so far as to submit that I should virtually ignore, or at least give very small weight to, the arguments to the contrary of the local authorities and the reasons underlying those arguments.

From the local authorities' side, very strong pleas were addressed that the leading cases should be kept to a minimum to avoid unnecessary duplication of costs, particularly in the light of the costs sharing order, and bearing in mind the financial problems of the various local authorities which are described in a number of affidavits. Special pleas were also addressed on behalf of those local authorities, eg Welwyn, Sandwell and Islington who have already been involved in the previous lead cases and are now candidates again.

I accept that the prima facie right of a plaintiff to have his case tried, or at least not to have it delayed indefinitely, is an important consideration, but I am unable to accept the suggestion that the arguments on the other side are insignificant in comparison. On the contrary, I consider that in the exceptional circumstances of these cases, the public interest in minimising costs, particularly where there is a possibility of unnecessary duplication, carries equal weight.

I can well understand the anxiety of the local authorities who are again candidates for selection, but I do not think that great weight can be given to this objection, seeing that they will have already undertaken a very considerable part of the necessary work, and one of the terms of the costs sharing order which I made yesterday, on Mr Dyson's proposal, will safeguard them in respect of those earlier costs.

The next question to be decided is whether the lead cases should concentrate at the outset on the restitution issue, or should, as Mr Southwell and other counsel for the banks argued, spread the net wider to include intermediation. I am quite satisfied that the first and most important requirement is to decide the restitution issue, not least because (as a number of non-lead local authorities have submitted) the decision on this key point will constitute by far the most useful guideline for the general body of non-lead cases. Warburgs v. Birmingham centres on this key point (together with a change of position defence), and, since both sides are volunteers, is self-selecting as the lead case in the first tier of group one (the restitution group).

West Deutsche Landesbank v. Islington and Kleinwort v. Sandwell also raise the key point without other complications, and I was very strongly pressed by Mr Eder on behalf of West Deutsche that they should join with Warburgs v. Birmingham in the first tier of group one. I am unable to accept this proposal, since I think that such duplication of cases in tier one of group one will unnecessarily increase costs without serving a useful purpose, particularly since other banks and other authorities will, as I indicated yesterday, be free to address separate arguments on the restitution issue in the Warburgs v. Birmingham case.

However, Mr Eder is perfectly justified in his anxiety to get his case on as soon as possible, as indeed are the other bank plaintiffs. It is also desirable to have a second tier in group one in case Warburgs v. Birmingham settles. I therefore propose to make both the West Deutsche case and Kleinwort v. Sandwell second tier cases in group one and to order discovery inspection, interrogatories (if any) and exchange of witness statements, both factual and expert, in those cases so that they can be ready to step into the breach on reasonably short notice should Warburgs v. Birmingham settle. In selecting Kleinwort v. Sandwell I bear in mind Mr Dyson's argument that the court should choose for the second tier in group one another non-lead case (eg Wakefield) rather than one involving his clients, but it seems to me unrealistic to suggest that at this present juncture the court should go outside the list of lead cases presently proposed, not least because it would probably involve choosing as a lead case one (such as Wakefield) where the costs would be wholly disproportionate to the amount claimed.

The one other proposed lead case where restitution is the main issue is Kleinwort Benson v. Merton, but it is by comparison with the rest a fairly small claim, and Merton object to their selection on the ground that they are net claimants on their swap transactions as a whole. I accept Merton's argument and do not think their case is appropriate as a lead action at all.

I now turn to group two, comprising all the remaining cases, all of which are intermediation cases, falling broadly into three sections:

(i) Morgan Grenfell v. Welwyn with Islington as third parties and action no 1440 which raise (in addition, of course, to restitution) a straightforward intermediation issues without complication such as arise in the cases in the other two sections referred to below.

(ii) the three Chemical Bank cases, all of which involve intermediation (in addition, of course, to restitution) but all of which also contain complex allegations of fraudulent or innocent misrepresentation, leading to a substantial volume of evidence and argument which has no bearing on any of the other cases. In my judgment these three cases are not suitable as first tier lead cases in group two.

(iii) the two cases in which South Tyneside are defendants also raise the restitution and intermediation issues, but have significant added complications in the third party proceedings against the neighbouring local authorities in the North East, in connection with the reconstruction of local government in that area upon the establishment of the Tyne & Weir Residuary Body. This in my judgment renders these two cases also as unsuitable as first tier cases in the second group.

Morgan Grenfell v. Welwyn and action no 1440 will therefore be the sole first tier cases in group two (the intermediation group). The cases in the other two sections will be second tier cases in group two and should go through the same procedures up to and including the exchange of witness statements, so that they can be ready at reasonably short notice should they be required as substitutes, and also so that the plaintiff banks in these very substantial cases can look forward in any event to a reasonably speedy trial.

I should note that the Chemical Bank cases may come to trial whatever the outcome of the restitution issues, since the pleas of misrepresentation relied upon are separate causes of action. At whatever stage they reach trial all three Chemical cases should be tried together since they are closely linked and involve the same witnesses on the banks' side.

A point was raised in all the intermediation cases as to whether the third party proceedings should be hived off separately. In my judgment it is essential that the third party proceedings be tried at the same time as the main claims, seeing that the intermediary parties are relying on their intermediation as a change of position, so that it would be highly unsatisfactory if different decisions were reached at separate trials as between the plaintiffs and the defendants on the one hand and the defendants and the third party or third parties on the other.

In reply Mr Southwell very strongly urged that I should specify fixed dates in succession after Warburgs v. Birmingham of certain of the other cases in the following order: Morgan Grenfell v. Welwyn, West Deutsche Bank v. Islington, one of the two South Tyneside cases, and one of the Chemical actions. The main ground for this suggestion was that it would give each successive case an assured date to which the parties could work and would, it was argued, be more efficient. In my judgment, however, this would introduce an undue degree of inflexibility. It would also be very disadvantageous in that it would require all the local authority defendants and third parties in those cases to be ready for trial, with considerable expenditure of costs, and also a serious impact on the cost sharing order, which affects not only the lead local authority defendants and third parties as potential recipients, but also all the local authority defendants in the non-lead cases as potential paymasters contribution.

I therefore propose that the only case to be given a fixed date at the present stage should be Warburgs v. Birmingham. If, of course, all three group one cases were to settle, the first tier case in group two would succeed as the first lead case, followed (if that also settled) by the second tier cases in group two. But if as a result of settlements the only cases left were those in the second tier of group two, it would be for further consideration whether they should be tried together or separately and if the latter, in which order: the same applies mutatis mutandis to the second tier cases in group one.

All parties in the lead cases should keep in very close touch with each other and with the court between now and the end of this year in order to enable the above arrangements to work as smoothly as possible. Having regard to the information made available to me, it seems clear that it would be feasible to fix Warburgs v. Birmingham for trial in January 1993. Following judgment in that case, depending on the outcome on the restitution issue, applications as appropriate in the other lead cases for reasonably speedy trial will be sympathetically considered. The court proposes, after consultation with the Commercial Court office this morning, to set aside a suitable period in the Michaelmas Term 1993 for this purpose.

Finally, I summarise the programme: group one, restitution, first tier Warburgs v. Birmingham, second tier, West Deutsche Landesbank v. Islington, Kleinworts v. Sandwell; group two, intermediation, first tier Morgan Grenfell v. Welwyn and action no 1440, second tier, the three Chemical Bank cases and the two South Tyneside cases.