UJB FINANCIAL CORPORATION v. CHILMARK OFFSHORE CAPITAL FUND LIMITED 09-April-1992
[1992–93 CILR 53]
UJB FINANCIAL CORPORATION v. CHILMARK OFFSHORE CAPITAL FUND LIMITED
GRAND COURT (Schofield, J.): April 9th, 1992
Confidential Relationships—confidential information—register of shareholders—register is confidential information under Confidential Relationships (Preservation) Law—no order for disclosure to assist foreign proceedings if application merely “fishing expedition” seeking information about shareholders to support speculative action
  The applicant applied for discovery against the defendant to support claims made in a foreign suit.
  The applicant, a bank holding company incorporated in New York, brought proceedings there against certain of its shareholders including the defendant. It alleged that the defendant had violated the US Exchange Act by failing to disclose to the Securities & Exchange Commission an agreement it had made with its own shareholders concerning securities issued by the applicant. To support this claim it was necessary for the applicant to discover the identities of the shareholders of the defendant (the names of whom were registered in the Cayman Islands) with a view to obtaining further information from them.
  On the basis of its wide discovery laws, the New York court granted a declaration that the applicant was entitled to disclosure of the information sought but to safeguard against breach of the Cayman confidentiality laws, further directed that the parties apply to the Cayman courts for directions. Accordingly, in the present proceedings the applicant sought directions as to (a) whether the defendant’s list of shareholders was confidential information within the meaning of the Confidential Relationships (Preservation) Law; (b) whether such information should be disclosed pursuant to the New York ruling; and (c) if so, on what conditions.
  Held, refusing to grant an order for disclosure:
  Although as an exercise in comity the court would normally give effect to an order by a friendly foreign court, it was unable to do so in this case. The defendant’s register of shareholders was confidential information protected by the Confidential Relationships (Preservation) Law and the court’s discretion to allow discovery was dependent on the nature of the application for discovery. The applicant had offered no evidence to support the allegation it was making against the defendant in the New York proceedings and, moreover, could not proceed with the proceedings unless it were able to obtain further information from certain as yet unidentified shareholders. The application therefore
1992–93 CILR 54
appeared to be solely a fishing expedition for the purpose of ascertaining whether there was a basis for the New York proceedings. The applicant had failed to make out a sufficiently persuasive case to warrant an order that the register of shareholders should be disclosed and the court would rule accordingly (page 56, lines 11–39; page 57, lines 22–29; page 58, lines 15–26).
Legislation construed:
Confidential Relationships (Preservation) Law (Law 16 of 1976), s.3(1) as amended by the Confidential Relationships (Preservation) (Amendment) Law, 1979 (Law 26 of 1979), s.3: The relevant terms of this sub-section are set out at page 55, lines 32–37.
s.3A(6) as added by the Confidential Relationships (Preservation) (Amendment) Law, 1979 (Law 26 of 1979), s.4: The relevant terms of this sub-section are set out at page 57, line 40 – page 58, line 9.
R. Nelson for the applicant;
A. Jones for the defendant;
A.S. Smellie, Solicitor General, as amicus curiae.

               SCHOFIELD, J.: UJB Financial Corporation (“UJB”) is a 
  bank holding company incorporated in the State of New Jersey in 
20  the United States. It owns and operates six bank subsidiaries and 
  nine active non-bank subsidiaries. Its shares are traded on the 
  New York Stock Exchange. A disagreement has arisen between 
  UJB and its largest shareholders as to the advisability of UJB 
  exploring the possibility of entering into an extraordinary 
25  corporate transaction such as a merger. The annual meeting of 
  shareholders has been called for April 20th, 1992 at which will be 
  discussed these and other issues. Chilmark Offshore Capital Fund 
  Ltd. (“Chilmark”) is a private investment company which was 
  founded on March 3rd, 1989 in the British Virgin Islands. Its 
30  principal place of business is in the Cayman Islands. One of its 
  investments is a 3.74% shareholding in UJB. 
    UJB has filed suit in the US District Court, Southern District of 
  New York, naming five defendants, two individuals and three 
  corporate entities, one of which is Chilmark. Between them these 
35  five defendants hold 9.9% of the shares in UJB. UJB alleges that 
  the corporate defendants are investment vehicles for the two 
  individual defendants. This the defendants deny, maintaining 
  that the two individuals merely manage the funds of Chilmark 
  and the other corporate entities. Chilmark has over 100 share- 
40  holders and no individual shareholder owns more than 7.3% of its 
  shares. Only one shareholder, not one of the individual defen 
1992–93 CILR 55

         dants, is a director of Chilmark. UJB’s allegations against the 
  defendants in the New York action involve violations of the 
  Exchange Act in filing allegedly false or misleading documents 
  with the Securities & Exchange Commission. 
5    UJB applied for orders of discovery in the New York District 
  Court. For the most part these were settled by counsel but one 
  issue in dispute was whether UJB was entitled to discovery of the 
  names of the shareholders of Chilmark. By an order of Judge 
  Haight dated March 16th, 1992 it was determined that UJB was 
10  so entitled but, clearly in the interests of comity, the learned 
  judge did not compel disclosure; rather he directed the parties to 
  make application to this court for directions lest any order he 
  made involved Chilmark in a violation of our Confidential 
  Relationships (Preservation) Law (“the Law”). I am now called 
15  upon (a) to declare whether the information sought is confidential 
  information within the meaning of the Law; (b) if so, to declare 
  whether such information should be disclosed pursuant to Judge 
  Haight’s ruling; and (c) if so, to determine what conditions should 
  be attached to the order for disclosure. 
20    “Confidential information” includes information concerning 
  any property which the recipient thereof is not, otherwise than in 
  the normal course of business, authorized by the principal to 
  divulge (see s.2 of the Law). In this case neither Chilmark nor its 
  shareholders have authorized the disclosure of the names of those 
25  shareholders. The register of shareholders is not a matter of 
  public record in any jurisdiction. So much is obvious, otherwise 
  the order for discovery would be unnecessary. And there is 
  information before the court that such register is not a matter of 
  public record in the Cayman Islands or in the British Virgin 
30  Islands. 
    Section 3(1) of the Law provides: 
        “Subject to subsection (2), this Law has application to all 
      confidential information with respect to business of a 
      professional nature which arises in or is brought into the 
35      Islands and to all persons coming into possession of such 
      information at any time thereafter whether they be within 
      the jurisdiction or thereout.” 
  Judge Haight had difficulty in concluding that Chilmark’s list of 
  shareholders “arises in” the Cayman Islands, since Chilmark is 
40  incorporated in the British Virgin Islands. It was not clear to him 
  that the list of shareholders had been brought into these Islands 
1992–93 CILR 56

         because the information before him was insufficient to enable him 
  to reach that conclusion. It has now been made clear by an 
  affidavit of Roger Hanson, an officer employed by Pierson 
  Heldring & Pierson Ltd. of Grand Cayman, that Chilmark is 
5  administered by that company and one of the company’s 
  functions under an agreement between it and Chilmark is to 
  maintain Chilmark’s register of shareholders and record in it all 
  issues, transfers and redemptions of shares. Chilmark has no 
  presence and maintains no records in the British Virgin Islands. 
10  This, as I say, was not made known to Judge Haight. 
    The list of shareholders of Chilmark is confidential information 
  and comes within the scope of the Law. 
    Should I order the information contained in that list to be 
  disclosed in the New York suit? The New York District Court has 
15  ruled that the information is discoverable. I must, and do, place a 
  great deal of weight on that ruling. It is the valid order of a 
  competent friendly court and must be regarded with the utmost 
  respect. Judge Haight, in the New York District Court, paid 
  respect to the laws of these Islands and this court, if there is no 
20  bar thereto, should give effect to the orders of his court and assist 
  his court to dispense justice in accordance with its own rules. 
    The difficulty I have is that the discovery application in this 
  case is quite clearly a “fishing expedition” to elicit information 
  which may assist UJB to make out its case in the one issue in the 
25  trial to which the application relates. The particular disclosure to 
  the Securities & Exchange Commission which UJB alleges the 
  defendants to the New York action did not make was in relation 
  to any contract, arrangement or understanding between Chil- 
  mark and its shareholders with respect to any securities of UJB. 
30  In other words UJB alleges that Chilmark and its shareholders or 
  some of them have entered into an agreement relating to the 
  matters in dispute between the shareholders and UJB. But it is 
  admitted by counsel for UJB that UJB has no evidence to support 
  that complaint and will be unable to pursue it unless it obtains the 
35  names of Chilmark’s shareholders and, if appropriate, has an 
  opportunity to examine them or some of them. 
    The basis upon which the ruling on discovery was made was the 
  very wide provisions of the rules relating to discovery applicable 
  in the New York District Court. Rule 26 of the appropriate Rules 
40  of Civil Procedure allows discovery— 
      “regarding any matter, not privileged, which is relevant to 
1992–93 CILR 57

             the subject matter involved in the pending action. . . . It is 
      not ground for objection that the information sought will be 
      inadmissible at the trial if the information sought appears 
      reasonably calculated to lead to the discovery of admissible 
5      evidence.” 
  It was on that basis that the learned judge ruled that discovery 
  should be ordered. He said: 
      “. . . [O]ne cannot preclude the conceptual possibility that a 
      corporation has entered into an arrangement or relationship 
10      with one of its shareholders ‘with respect to any securities of 
      the issuer,’ here UJB. To be sure, the defendants deny such 
      an arrangement, and the documents presently in the record 
      are consistent with that denial. But I agree with the plaintiff 
      that the subject is one of legitimate enquiry for discovery 
15      purposes. 
        I hold, in short, the plaintiff’s interrogation falls within the 
      scope of discovery allowed under [the appropriate rule].” 
  In other words, the learned judge had nothing before him in 
  evidential terms which could lead him to find that any arrange- 
20  ment complained of actually existed; he found that the docu- 
  ments before him were consistent with Chilmark’s denial thereof. 
  There is nothing on record before me to demonstrate that UJB is 
  any further along the road in providing evidence to support its 
  contention of any arrangement which would make Chilmark in 
25  breach of its obligation to the Securities & Exchange Commis- 
  sion. There is nothing before me to demonstrate other than that 
  the confidential information sought is for the purpose of 
  ascertaining whether there is any basis for the claim it has made in 
  its plaint to the New York District Court. 
30    Counsel for UJB argues that if the shareholders of Chilmark 
  want their dealings to be clothed in secrecy then they should not 
  invest in a company which in turn invests in high-profile and 
  highly regulated foreign corporations such as UJB. However, 
  that argument rather begs the question because the regulations in 
35  the United States do not require Chilmark to furnish a list of its 
  shareholders to the Securities & Exchange Commission unless 
  there is an agreement as is complained of in the New York suit. 
    Section 3A(6) of the Law does not help me in determining this 
  matter. It states: 
40        “In considering what order to make under this section a 
      Judge shall have regard to— 
1992–93 CILR 58

                   (a)    whether such order would operate as a denial of 
                      the rights of any person in the enforcement of a 
                      just claim; 
            (b)    any offer of compensation or indemnity made to 
5                      any person desiring to enforce a claim by any 
                      person having an interest in the preservation of 
                      secrecy under this Law; 
            (c)    in any criminal case, the requirements of the 
                      interests of justice.” 
10  Sub-sections (b) and (c) clearly do not apply in this case. Nor 
  does sub-s. (a). We do not know if UJB has a just claim in 
  relation to the issue on which discovery is sought. UJB itself does 
  not know if it has a just claim in the absence of such discovery and 
  examination of witnesses thereafter. 
15    In this application I have to balance my desire and duty to assist 
  the District Court of New York to reach a just resolution of the 
  issues before it and my desire and duty, reasonably and within the 
  conscience of the court, to respect the emphasis placed upon the 
  confidentiality of information within these Islands as embodied in 
20  its legislation. I have a duty to protect where I can the 
  confidentiality of those who are not parties to this application. 
  UJB has not made out a sufficiently persuasive case to warrant an 
  order from this court that the confidential information it seeks 
  should be released. UJB has been unable to show that it is 
25  embarked upon other than a fishing expedition. Had it been 
  otherwise the result may have been different. 
    In the event I make a declaration in terms of para. (1) of the 
  summons filed on March 25th, 1992. I give a direction pursuant to 
  para. (2) that the information sought should not be disclosed. 
Order accordingly.
Attorneys: Truman Bodden & Co. for the applicant; Maples & Calder
for the defendant; Government Legal Dept.