Cutler v Azur Pharma International III Ltd & ors

Factual and Procedural Background

The Plaintiff, a psychiatrist, founded a corporation in 2000 and developed a drug for the treatment of schizophrenia. In 2006, the Plaintiff sold the drug brand to the third Defendant under a unit purchase agreement with deferred payments contingent on future net revenues. The third Defendant later sold the business to the first Defendant, which assumed the obligations under the agreement. The second Defendant is the corporate parent of the first Defendant.

In 2011, the Plaintiff commenced proceedings in a foreign jurisdiction seeking damages, alleging that the Defendants deliberately suppressed net product revenues through improper marketing and pricing practices, thereby depriving him of contingent payments. The Defendants deny these allegations and contend that their auditors, KPMG Ireland ("KPMG"), approved the relevant accounting practices.

The Plaintiff's counsel applied to the foreign court to issue letters rogatory to this court requesting the examination under oath of a representative of KPMG and the production of documents related to KPMG’s audit and advisory services concerning the drug's financial statements and revenue recognition from 2007 to 2013. The letters of request were granted ex parte by this court in July 2014, directing a KPMG representative to be examined and to produce documents. KPMG attended the hearing and indicated it might apply to vary or set aside the order.

KPMG subsequently brought a motion seeking to set aside or vary the order or, alternatively, to require the Plaintiff to provide security for costs arising from compliance with the request.

Legal Issues Presented

1. Whether the court should set aside or vary the order giving effect to the letters rogatory issued by the foreign court requiring KPMG to be examined and produce documents.
2. Whether the letters rogatory constitute a request for discovery of documents, which is impermissible under the Foreign Tribunals Evidence Act 1856.
3. Whether the request is oppressive, overly broad, premature, or otherwise inappropriate to be enforced by the court.
4. Whether security for costs should be required from the Plaintiff in respect of compliance with the request.
5. Whether the Plaintiff should give an undertaking not to join KPMG as a defendant in the foreign proceedings or initiate fresh proceedings against KPMG related to the matters in issue.

Arguments of the Parties

KPMG's Arguments

• The court must consider the application de novo despite the prior ex parte order, relying on established case law.
• The letters rogatory are in substance a request for discovery of documents, which the court has no power to order under the 1856 Act.
• The request seeks wide categories of documents rather than specific items, resembling discovery rather than evidence gathering.
• The Plaintiff has not identified a specific witness, indicating the request is for documents rather than testimony.
• The categories of documents sought are excessively broad, vague, oppressive, and disproportionate.
• Internal KPMG documents not provided to the Defendants cannot be relevant to the foreign proceedings.
• The request is premature and unnecessary since discovery in the foreign proceedings is ongoing and documents can be obtained from the Defendants.
• The Plaintiff failed to disclose material information regarding the ongoing discovery process in the foreign proceedings, undermining the ex parte order.

Plaintiff's Arguments

• KPMG's testimony and the documents requested are essential to test a central element of the Defendants' defence in the foreign litigation.
• The courts should be favourably disposed to granting international judicial assistance where possible.
• The particular circumstances that justified refusal in cited Irish cases do not apply here.
• The request is neither premature nor unnecessary, as the evidence sought is relevant and critical regardless of ongoing discovery.
• The breadth of the request is appropriate, relating to one product and one client, and KPMG has not specified which parts are oppressive.
• The absence of a named witness is understandable given the Plaintiff’s lack of knowledge about who is best placed to give evidence.
• The Plaintiff does not intend to join KPMG as a defendant or commence fresh proceedings against them.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the principle of international comity, stating that it should be slow to refuse letters rogatory and generally endeavour to give effect to requests from foreign courts. However, the court acknowledged that enforcement remains discretionary and subject to conditions.

The court considered whether the request was in substance a request for discovery of documents, which it cannot enforce under the Foreign Tribunals Evidence Act 1856. While some elements of the request resembled discovery, the court found that KPMG, as auditors, had relevant evidence to give, particularly concerning the returns reserve issue central to the foreign proceedings.

The court noted that the request was broad and potentially oppressive due to the volume of documents and time required, but it had jurisdiction to limit or "prune" the scope of document production to address these concerns. Reference was made to analogous decisions where courts reduced the scope of requests to avoid undue burden.

The court rejected the argument that the request was premature, recognizing the protracted nature of the proceedings and the importance of the evidence sought.

Regarding non-disclosure of the ongoing discovery process in the foreign proceedings during the ex parte application, the court found the omission was not deliberate or sufficiently serious to refuse the request, especially as no prejudice had arisen.

The court also addressed concerns about the relevance of internal KPMG documents, concluding they could be material to the auditing methodology and thus relevant to the foreign case.

Finally, the court considered the risk of oppression if KPMG witnesses faced examination that might lead to their joinder as defendants in the foreign proceedings. An undertaking from the Plaintiff not to join or initiate proceedings against KPMG was deemed an appropriate condition to mitigate this risk.

In conclusion, the court found the four criteria identified in precedent—relevance, non-oppression, no override of privilege, and admissibility—were satisfied subject to conditions and variations to the order.

Holding and Implications

The court's final decision was to give effect to the letters rogatory subject to specific conditions and variations:

• The order requiring KPMG to produce documents shall exclude documents already in the possession of the Defendants and subject to discovery in the foreign proceedings to avoid duplication and oppression.
• The Plaintiff must provide security for costs to cover any expenses KPMG incurs in complying with the order.
• The Plaintiff must give an undertaking not to join KPMG as a defendant or commence fresh proceedings against KPMG in relation to the matters in the foreign case.
• KPMG shall not be required to comply with the order until these conditions are fulfilled.

The direct effect of this decision is to permit the examination of KPMG representatives and production of relevant documents under controlled conditions, balancing the interests of justice and protection against oppression. No new precedent was established beyond the application of existing principles and the exercise of discretion in these circumstances.