Bloomsbury International Ltd & Ors v Holyoake & Ors

The claimants are companies engaged in the seafood trade, which I will refer to as “the Four Companies”. The Four Companies were placed in administration by order of Morgan J on 19^th February 2010. The administrators, who are partners in the firm of Deloitte LLP, claim, subsequent to their appointment, to have uncovered a significant fraud on the Four Companies. They commenced the present proceedings on their behalf against two of the directors, Mr Holyoake and Mr Wells, the first and second defendants, and also against numerous other companies said to be involved. On March 16 2010 I granted a worldwide freezing order and a search order on the application of the claimant companies in administration against the first eleven defendants, freezing assets up to the value of £210 million. On 23^rd March I granted a further such order against the 12^th to 14^th Defendants. On 29^th March I granted a yet further order against the 15^th to 19^th Defendants. The first of the two applications before me is an application made on behalf of the defendants for fortification of the cross undertaking which was required as a condition of the freezing orders. The second application, which is made by Mr Holyoake and Mr Wells, is an application in the administration proceedings and seeks the appointment of additional administrators, on the grounds that Deloitte LLP and its predecessor entities have acted as personal tax advisors to Mr Holyoake, and are therefore in a position of conflict in relation to the fraud proceedings. I shall refer to the two applications as “the Fortification Application” and “the Conflict Application” respectively. A third application, concerned with reducing the sum secured by the freezing order, has been adjourned with liberty to restore.

The defendants are said to have been involved in various ways in a conspiracy to defraud the claimant companies of very large sums of money. It is said that Mr Holyoake and others arranged for the Four Companies to borrow large sums of money from banks, remitted these sums to suppliers in Hong Kong on the basis that they were purchasing seafood products for the Four Companies, when in fact no such product was to be supplied. The Hong Kong suppliers are companies of which Mr Holyoake is the ultimate beneficial owner. Initially at least, the matter was presented to me on the basis that the defendants were wholly responsible for an excess of liabilities over assets in the company of the order of £200 million. Subsequent investigations revealed that sums paid to the Hong Kong suppliers were remitted to companies in this country with which Mr Holyoake was also connected, leading to the joinder of the 12^th to 14^th defendants. In short, it was being said that Mr Holyoake had misappropriated significant sums from the company, leaving the company with a significant excess of liabilities over its assets.

These allegations are hotly contested by Mr Holyoake and Mr Wells. They point out that the 12^th to 14^th defendants have in turn remitted large sums of money back to the claimants, and over a particular period have in fact paid more money to the first claimant than the first claimant has paid out. Of course, at this stage, much of what is alleged by the administrators remains unexplained by Mr Holyoake and Mr Wells. In particular no real sense is made of the overall movement of funds in this way. The administrators are far from satisfied by Mr Holyoake’s explanations, and some aspects of their allegations are not yet the subject of any explanation from Mr Holyoake. It is fair to note, however, that the scale of the fraud, if there was one at all, may turn out to be more limited than that which it was originally presented to be. In the meantime all Mr Holyoake’s very substantial asset portfolio remains frozen.

The cross undertaking which was included in the worldwide freezing order which I made was in the following, limited, form:

“If the Court later finds that this Order has caused loss to a Respondent, and decides that a Respondent should be compensated for that loss, the Applicants will comply with any order that the Court may make, subject to any order being limited to the sums from time to time held within the administration estates of the Applicants.”

It will be seen that that undertaking was not given by the administrators personally but by the companies in administration. Moreover it is limited to the sums for the time being in the estates being administered.

Mr Matthew Smith, a partner in Deloitte, and one of the joint administrators with Nicholas Edwards and Louise Brittain, acknowledged in his first Affidavit that the Four Companies were heavily insolvent. He estimated that the assets of the Companies (before liabilities in the region of £250 million) were likely to be in the region of £15 million. This was “prior to the payment of any professional fees, which will clearly be significant in a case of this sort”.

In his second witness statement, Mr Holyoake said:

“Given the size of the professional services teams working on the current litigation … it is in my view fanciful to think that there will, following the trial of the action, be any assets in existence upon which the undertaking may “bite”. In any event, I would only become one of a number of creditors of the administration estates, which in practice could be worthless.

Mr Smith explained in his second witness statement that at the date of the administration the total liabilities were estimated at £273.6 million. The only significant assets were debtors and stock. Figures presented to the creditors meeting on 20^th April 2010 showed stock at £10.6 million, debtors at £4.8 million and other assets at £0.6 million. Beyond this explanation Mr Smith did not venture any comment as to the value of the cross-undertaking, or specifically take issue with Mr Holyoake’s opinion that the undertaking was likely to be worthless.

An interim report by the administrators prepared for the 20^th April meeting shows that in a period of less than one month from 19^th February to 15^th March 2010 more than £800,000 has been expended by the administrators. The initial investigation of the fraud took approximately 450 man hours (excluding legal advisers). Mr Smith explains in a number of places in his evidence that the investigation is continuing and is likely to continue for a significant period.

The figure of £800,000 relates to Deloitte’s employees, and excludes the costs of the solicitors in the present action which will undoubtedly be substantial. I invited Mr McQuater QC on two occasions to give me an estimate of the total costs to date, but he was unable to do so. These solicitor costs are also likely to be substantial. Simply by way of example the claimants’ solicitors have presented bills on the various applications before me as follows: for the Conflict Application £139,000, and £112,000 for the Fortification Application.

The defendants for whom Mr Howe QC appears say that this cross undertaking is insufficient and should be fortified by the provision of a bond in such sum as the court considers appropriate, and which they tentatively suggest should be £10 million. They submit that the present cross undertaking is effectively worthless.

There is no dispute that the cross undertaking is the normal price which a litigant pays for obtaining a restraining order at a stage of the litigation before that litigant has established any rights. The court makes the litigant give a cross undertaking in damages against the possibility that it may turn out at trial that the order should not have been made. In a case where it does turn out that an order should not have been made, the party restrained may have suffered harm at the behest of the litigant which would result in injustice if there existed no means for it to be redressed. Absent a cross undertaking, the law does not provide any automatic means of redress for a party who is harmed by litigation wrongly brought against him in good faith. The cross undertaking is the means by which the court ensures that it is in a position to do justice at the end of the case.

Whilst a cross undertaking will always be included in a coercive or restraining order (other than in cases brought by the Crown to enforce the law or to perform a public duty) there is no rule that an injunction will never be granted or continued if the cross undertaking is of no real value. In Allen v Jambo Holdings [1980] 1 WLR 1252 the Court of Appeal allowed a Mareva injunction to be granted notwithstanding that the cross undertaking was of no value. The majority of the Court regarded it as a factor to be taken into account in assessing, as Shaw LJ put it,

“the course to be taken … which would involve the least risk of ultimate injustice”.

In the context of insolvent companies, liquidators or administrators are not required to give open ended cross undertakings. Thus in DPR Futures Limited [1989] 1 WLR 778 joint liqudators declined to give such undertakings in circumstances where there were no large creditors who could give them an indemnity, but merely a large number of small investors. They were, however, prepared to offer a personal cross-undertaking limited to a fixed sum, and take the risk that they would not be able to recover this sum from the assets of the company. Millett J (as he then was) accepted this as sufficient security “in the absence of wholly unforeseen circumstances”. At 785 G-H he said this:

“The joint liquidators have no personal interest in the outcome of the proceedings. They are acting in the performance of their statutory duties. They seek to recover for the benefit of a large number of small creditors from whom it is impractical to obtain an indemnity, but they cannot bring themselves within the principle of those cases where the courts dispense altogether with the requirement for a cross-undertaking in damages.

Millett J described as “more theoretical than real” an argument that, by accepting a limited cross undertaking, the court was wrongly depriving itself of the opportunity in advance to do the fullest justice between the parties. He pointed out:

“Before the Insolvency Act 1986 most claims of the present kind were brought by the company itself. It was usual in such circumstances for a cross-undertaking in damages to be given by the company, not by the liquidator. Although theoretically unlimited, the value of the cross-undertaking was in reality limited to the value of the company's assets. This made it necessary for the court to make a realistic estimate of the potential loss which might be suffered by the defendant as a result of the grant of an injunction, and where the company's assets were insufficient to support an adequate cross- undertaking the court would require it to be fortified by a bond or payment into court. The cross-undertaking would still in practice be limited in amount; that is to say, to the amount of the company's assets together with the amount of the bond or payment into court. The court would not require the creditors, still less the liquidator, to provide an unlimited guarantee that the defendant would suffer no loss from the granting of the injunction will stop.”

A number of things are apparent from those passages:

In Sinclair v Cushnie (unreported) [2004] EWHC 218 (Ch) at [24] Mann J explained that the assessment of the likely harm to the defendant which was to be caused by the order was limited to an enquiry as to whether there was a risk of loss. More refined questions of causation and likelihood would be appropriate for the enquiry, should the undertaking be called upon. At [26] he pointed out that general freezing orders, as opposed to those concerned only with specific assets,

“may often be instances of cases in which it is not possible to predict with any certainty what loss will be caused, but in which it is sufficiently clear that there is a general risk of loss such as to justify the court ensuring that the cross-undertaking has real value or requiring fortification.”

In the case of a freezing order it may be necessary to distinguish between the harm caused by the existence of the litigation and the harm caused by the fact that the freezing order has been made. This consideration is important in the present case, because Mr Holyoake relies on a number of instances where his standing has been called into question by bankers and business associates since the grant of the order, and the question may arise as to whether this is damage which he would have suffered in any event. But it is very difficult on the limited evidence which is available to be sure whether or not it is the litigation or the order which is giving rise to the prospect of harm.

In Harley Street Capital v Tchiginrinski [2005] EWHC 2471 (Ch) Michael Briggs QC sitting as Deputy Judge of this Division (as he then did) considered it appropriate to consider this issue as part of forming the intelligent estimate at the interlocutory stage. He reached this provisional conclusion at [22]:

“That analysis strongly suggests to me that it is loss caused by the preventative or, as the case may be, coercive effect of the injunction that is recoverable under the cross-undertaking.”

The defendants in that case relied upon a loss in share value, as the freezing order had added credence to the serious allegations made in the proceedings. Mr Briggs QC was disinclined in that case:

"to treat a misconceived notion by investors that the grant of the freezing order lent the court’s credence to those allegations as part of a chain of causation between the freezing order and any loss in share value. It is a factor wholly unrelated to any restraint placed by the freezing order...”

In the subsequent case of Al-Rawas v Pegasus Energy Limited and others [2008] EWHC 617 (QB) Jack J reviewed a number of authorities, both here and elsewhere, on the question whether it was appropriate to award general damages on an enquiry on the cross undertaking arising out of a freezing order and search order. He drew an analogy with the effect on a person’s reputation of the stopping of a cheque. At [35] he said this:

“I consider that there is a close analogy between the stopping of a cheque by a bank and the obtaining of a freezing order. In each case there is an interference with the party's ability to use its money as it wishes. It goes to the heart of a party’s ability to use the banking system, which is at the heart of trade. To be on the wrong end of a freezing order is undoubtedly a stigma … it suggests that the defendant has failed to pay its debts and has been found likely to try to dissipate its assets. ”

Then at [39], he concluded:

“I conclude that it is in accordance with principle and the above authorities that general damages may be awarded where a search and seizure order has been wrongly obtained, and likewise with a freezing order. Such damages are to compensate the defendant for the consequences of the order which cannot be claimed as special damage. They are not, however, awarded for nothing. It may be obvious that the particular circumstances of the case justify an award, or it may well not be but rather the contrary. In most cases it will be necessary to have some evidence to support the award.”

Plainly, the strength of the causative link between the grant of a freezing order and damage to the commercial standing of the defendant will vary from case to case. Harley Street v Tchigirinski was a case where Mr Briggs QC felt able to discount it as an element in the defendants’ loss at the interim stage, whereas Al-Rawas was a case where it was ultimately considered to justify an award of damages, once all the evidenc was available.

Mr Holyoake has described in his witness statement the impact which he says the allegations of impropriety made in this action and the existence of the freezing orders have had on him. The details of those matters have been treated by consent as confidential, and it is not necessary for the purposes of this judgment to describe them in detail. In the main they consist of reactions of banks and others with whom he has business dealings. Broadly speaking he says that he may be caused to sell certain assets at a disadvantage, or to divorce himself from certain business associations, by reason of the existence of the order coupled with the serious allegations which are made in the action.

It is not easy at this stage definitively to relate many of these instances to the preventive or coercive effects of the order. Nevertheless I think it is realistic to suppose that the existence of the freezing order could cause significant damage to Mr Holyoake. Firstly, it is clear from the evidence that Mr Holyoake has an extensive asset portfolio. It is almost inevitable that the existence of the freezing order will cause him loss. The assets discussed in the evidence are worth millions of pounds. It is entirely reasonable to suppose that damage will be incurred on a commensurate scale by Mr Holyoake if he is unable to deal freely and properly with his assets. Secondly, the freezing order is a very extensive one, and does not relate solely to one or two assets. As Mann J observed in Sinclair v Cushnie, it will be easier to foresee a risk of loss in such cases. Thirdly, it is no answer to say that Mr Holyoake will always be able to apply for permission to dispose of assets: the delay in obtaining that consent may well be damaging, or make it not worth selling the assets at all. Fourthly, I think that this is a case where, at least at this stage, it is not unrealistic to suppose that the order may have a significant, incrementally damaging effect on Mr Holyoake’s standing. The examples given in his evidence may turn out to be cases where the order has had an impact on his ability to benefit from his ownership of assets and do business with others.

On this last point Mr Holyoake’s evidence is entitled to some weight. In his second witness statement he says this:

“It is clear from my negotiations with [ ] Bank that it is the Freezing Order as opposed to the claim itself which is the principal cause of its action. The fact that the court has already seen fit to freeze my worldwide assets and those of all the entities I control in whole or in part is the main reason why [ ] Bank believes that I lack ‘credibility’ and ‘stability’. This is to be distinguished from a damages claim, the existence of which is often an incident of doing business. I'm sure the damages claim, even one alleging fraud and for a substantial sum, would not have caused [ ] Bank the concern which it now expresses to me. … [ ] Bank simply sees that an English judge has already made a very onerous and comprehensive order against me and that the order still stands. The damage to my credibility and perception of stability caused by such a Court Order is incalculable, and far worse than the existence of the claim itself.”

Neither the company nor the administrators have made any effort to establish that the company will be good on the cross-undertaking by the time it comes to be enforced. Mr McQuater QC did suggest, somewhat late in the day, that they might be prepared to “ring-fence” some proportion of the assets, but he gave no details of how this might be achieved. He focussed his submissions on seeking to show that Mr Holyoake would not suffer any real harm which would justify the fortification of the cross-undertaking. For the reasons I have given, I reject those submissions.

I should mention two special factors in the present case. The first is that I was informed at the start of the hearing that the defendants had been the subject of a second freezing order at the suit of 3i, freezing Mr Holyoake’s assets up to £90 million. Thus it could be said that, to the extent that Mr Holyoake has a claim based on inability to deal with assets, he now has a solvent claimant against whom to proceed on the cross undertaking. I do not think that this is a material factor. Quite apart from the fact that I have not seen the terms of the 3i freezing order, any claim against 3i based on that order may be met with the retort that the damage was the consequence of the order in these proceedings.

The second factor that is material is that the creditors in the present case are substantial undertakings - banks. Unlike the administrators, the litigation is being brought for their benefit. Unlike the position facing the administrators in DPR Futures, it is entirely realistic for the administrators in the present case to seek an indemnity from these creditors, and for the creditors to give one. They are being kept informed of progress, yet it does not appear that the issue of an indemnity has even been raised with them in the period when this application has been awaiting a hearing. In a case where one finds, as I have, that a defendant is at risk of significant harm if it turns out that a freezing order has been wrongly granted, it is material to enquire whether there is any corresponding harm to the claimant if fortification is ordered. This is not a case, like Allen v Jambo Holdings where to require fortification beyond the claimant’s immediate assets would be likely to stifle the action. Nor is it even one like DPR Futures where the administrators are being asked to accept an unreasonable personal risk. Whilst Mr McQuater movingly suggested that the creditors had suffered enough at the hands of Mr Holyoake, and should not even be approached to fortify the cross undertaking, I do not think that is an adequate response. Quite apart from it being based on a one-sided evaluation of the merits of the case, if a party is going to suggest some difficulty with providing security (be it security for costs or security on the cross-undertaking) it is incumbent on it to produce some evidence of that difficulty. Here, there is none.

I should take the course in the present case which is least likely to lead to an injustice. I have no hesitation in saying that the cross undertaking should be fortified. To refuse to do so would potentially leave the defendants uncompensated for a very substantial claim, in circumstances where such an injustice would appear to be readily preventable. Equally I am satisfied that the undertaking should not be open ended. In my judgment the undertaking should be fortified in the sum of £4 million. This represents a realistic assessment of the order of damages that the defendants might suffer, although it is of course necessarily an unscientific one at this stage of the proceedings.

Mr Holyoake has been taking tax advice from Deloitte LLP and its predecessors Deloitte PCS Limited and Deloitte & Touche LLP since 2006. By this application he seeks the appointment of additional administrators. He has nominated two insolvency practitioners from Grant Thornton as these additional administrators, and they have consented to act.

I have outlined the scope of the fraud proceedings above. The proceedings have already involved the obtaining of search and freezing orders, and will involve investigations of transactions between numerous companies in which Mr Holyoake has an interest. The scope of the proceedings plainly has extended and will extend into every aspect of Mr Holyoake’s dealings with these companies, including for example the 16^th to 18^th Defendants. When it comes to enforcement of any substantial judgment obtained by the claimants, the scope of the proceedings will extend to all aspects of Mr Holyoake’s personal wealth.

By a letter of 11^th September 2006 Deloitte PCS Limited were retained to advise Mr Holyoake on an ad-hoc basis in relation to inheritance tax, VAT, stamp duty, employment taxes and other taxation implications of matters which he chose to refer to them. Appendix 1 to the letter set out the terms on which such “ongoing tax services” were to be given. Appendix 2 set out additional standard terms for personal tax advisory services. That Appendix said that Deloitte PCS Limited would advise Mr Holyoake on the establishment of a suitable tax efficient property investment structure to enable him to invest in residential and commercial property in the UK and abroad. This was to include direct ownership, transparent partnership structures, UK and overseas corporate ownership, and overseas “cell company” structures. Deloitte were to provide high level tax advice in the first instance, so as to allow more detailed consideration of the most appropriate structure. Mr Holyoake was to be responsible for supplying “any necessary information which will enable us to complete our advice”.

By a letter dated 28^th May 2008 Deloitte & Touche LLP were retained to advise Mr Holyoake and any of the entities which had been set up by Deloitte, which included Wellgold LLP, Hazelend LLP and Jaybright LLP, the 17^th to 19^th Defendants. The new letter was said to be necessary because of the setting up of these new entities. The letter explained that Deloitte & Touche LLP would act as Mr Holyoake’s tax agent and give advice on his tax affairs. The tax consulting services were those described in Appendix 2. The “Services and Deliverables” identified in Appendix 2 were to include the provision of ongoing tax advisory services “to you and relevant entities owned by you involved in your property or other business affairs”. Deloitte’s “Services and Responsibilities” were to “provide advice (on an ad-hoc and ongoing basis)”. Mr Holyoake for his part was to provide all information and explanations necessary for them to perform the services agreed. The letter also provided for “Additional Services”. These were to extend to such matters as “capital gains tax planning, inheritance tax, National Insurance or PAYE returns” which Mr Holyoake might wish to refer to them. As before the letter attached detailed terms of business.

In addition to these two retainer letters, further retainers were agreed in the course of 2007 with the entities set up for Mr Holyoake by Deloitte: in particular one with Wellgold LLP, the 17^th Defendant, on 6^th December 2007.

The 2006 retainer letter provided for termination on 30 days’ notice whilst the 2008 retainer letter provided for termination on 10 days’ notice.

The evidence shows that the advice to Mr Holyoake would follow this pattern: an initial report on tax structures, followed by detailed discussion with tax advisors, followed by implementation of the advice and decisions that were taken. The advice given to Mr Holyoake over the years dealt with how Mr Holyoake was to arrange matters between himself and members of his family, whether Mr Holyoake or members of his family should emigrate, considerations relevant to property ownership overseas and “cash extraction from BSF”. In May 2007, Ms Shearing of Deloitte reminded Mr Holyoake to send her a complete list of his personal assets so that they could set out some of the ways in which they could assist him in structuring them more efficiently.

Mr Holyoake accepts that Deloitte were not retained to give investment advice. It is clear that the focus of the advice was tax consulting services, but, as always with tax, the advice was deeply intertwined with Mr Holyoake’s business and asset position.

On 8^th April 2010 Deloitte LLP wrote to Mr Holyoake at an incorrect address purporting to terminate the 2006 retainer which was terminable on 30 days notice. On 26^th April 2010 Deloitte LLP wrote to Mr Holyoake at his correct address enclosing a copy of their earlier letter and purporting to terminate the 2008 retainer letter on the basis that the 2008 retainer superseded the 2006 letter. They also wrote on the same day to the other entities, including the 17^th defendant, to terminate the 2007 retainers with them. I do not need to decide the precise date on which all retainers came to an end. It is sufficient for present purposes to say that either all retainers came to an end on 7^th May 2010, or the 2006 retainer alone continues until 27^th May. Either way the retainers are effectively at an end.

Before the companies were placed in administration the Bank of Scotland requested Deloitte to perform an independent business review of the companies. Mr Smith met with Mr Holyoake and Mr Wells in December 2009 and requested documents which they needed for the review, documents which he said were not forthcoming. In due course the decision was taken to appoint partners of Deloitte as administrators. Mr Holyoake and Mr Wells were aware of the decision.

Once it became clear that Deloitte might be appointed as administrators, Mr Smith asked for a conflicts check to be performed. That check revealed that (a) Deloitte had undertaken work for Mr Holyoake previously, (b) the nature of that work had been tax consulting on an ad-hoc basis, and tax structuring and VAT advice in relation to his properties, (c) the fees which had been incurred in the previous three years amounted to approximately £150,000. Mr Smith duly considered whether these facts gave rise to any potential conflict in relation to his acceptance of the role of administrator. Mr Smith makes clear in his evidence that he considered that the relationship which Deloitte had with Mr Holyoake was “not a significant personal relationship” and was not a threat to the principle of objectivity which his code of ethics as an insolvency practitioner required. He concluded, for example, that the work “had no impact on the financial state of the Four Companies” and that “the fees which MH had paid were de minimis in the context of Deloitte’s annual turnover”. He concluded that the administrators would be “required to report on MH in his capacity as a director of the Four Companies, in respect of which his personal financial tax affairs and property have no relevance”.

Mr Hollander QC, for Mr Holyoake, rightly points out that this was not a conflicts check carried out in relation to the ability of Deloitte to sue their own client for fraud. Mr Hollander does not attack the decision of the administrators to agree to act in the administration. At that stage they had no reason to suppose that they would be taking any such proceedings. He draws attention to the fact that the alleged fraud was not uncovered until after the administration had commenced. At that stage, he submits, a fresh consideration of the conflict position should have been undertaken.

There is no dispute that the Court has a power to appoint an additional administrator for “good cause”. Mr Holyoake rests his case here on three propositions:

Mr Hollander submitted that Deloitte owed fiduciary duties to Mr Holyoake and the various other entities. At least during the period of the retainer, he submitted that Deloitte were subject to the rule against double employment. As Millett LJ said in Bristol & West Building Society v Mothew [1998] Ch 1 at 18:

“A fiduciary who acts for two principals with potentially conflicting interests without the informed consent of both is in breach of the obligation of undivided loyalty; he puts himself in a position where his duty to one principal may conflict with his duty to the other: … This is sometimes described as "the double employment rule". Breach of the rule automatically constitutes a breach of fiduciary duty." (emphasis in original)

In those circumstances Mr Hollander submitted that it could not be appropriate for the administrators to sue their firm's own client, to whom they owed such duties, for fraud. The administration of justice required the administrators to be independent and to be seen to be so. This could not be the case where the administrators owed duties to act both for and against Mr Holyoake. The conflict check performed by Mr Smith asked the wrong question and came to an incorrect conclusion as it was based on accepting a role as an administrator, not suing one’s own client for fraud.

Mr McQuater QC did not accept that Deloitte owed Mr Holyoake any fiduciary duties in the present case. He contended that the terms of business annexed to the retainer letters had successfully excluded any fiduciary duty. Alternatively, any fiduciary duty which arose out of the relationship was waived, either by the terms of the agreement or by Mr Holyoake’s conduct. Moreover he contended that any lack of independence would be perceived as a lack of independence in favour of Mr Holyoake, of which he had no need to complain.

It seems to me that subject to further matters which I shall mention, these arguments have been largely overtaken by the termination of the retainers. As Lord Woolf said in a speech with which Millett LJ and others agreed in Attorney-General v Blake [1998] Ch 439 at 453H and 454 D:

“We do not recognise the concept of a fiduciary obligation which continues notwithstanding the determination of the particular relationship which gives rise to it. Equity does not demand a duty of undivided loyalty from a former employee to his former employer ...

But these duties last only as long as the relationship which gives rise to them lasts… It is trite law that an employer who wishes to prevent his employee from damaging his legitimate commercial interests after he has left his employment must obtain contractual undertakings from his employee to this effect. He cannot achieve his object by invoking the fiduciary relationship which formerly subsisted between them."

Thus, in most situations, the termination of the retainer of a professional will, at the same time, terminate the fiduciary obligation. Of course, in some circumstances, the court will prevent such a trustee or other fiduciary from doing, after termination, something which his fiduciary obligation would have prevented him from doing before termination. But the cases which are cited in this connection such as Re Boles and British Land [1902] 1 Ch 244 at 246 are cases where a fiduciary is taking advantage of an opportunity which came to him in his capacity as such. In the normal case, such as the termination of a solicitor’s retainer, the only continuing duty will be a duty in relation to confidential information. In Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 at 235C Lord Millett summarises the position in this way:

“Where the court's intervention is sought by a former client, however, the position is entirely different. The court's jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence.”

On this basis I am prepared to assume in Mr Holyoake’s favour, without deciding, that (a) Deloitte did owe him a fiduciary obligation which ought to have prevented them taking proceedings against him for fraud and (b) he had not waived any such obligation either under the terms of the retainer letters or otherwise by his conduct. The fact remains however that any such obligation has either already been terminated or is about to be.

On this basis, it would have been improper for Deloitte to commence the proceedings. It remains to consider, however, whether it is established that such breach as there has been on this hypothesis of the principle of independence of the administrator, or of the duty owed to Mr Holyoake, is a ground for ordering the appointment of additional administrators.

It seems to me that whatever may ultimately be held to be the case about the commencement of the fraud proceedings, those proceedings are now on foot and will continue: it is no part of Mr Holyoake’s application to suggest that they are so tainted by the manner in which they have been commenced that they should be struck out. Indeed it is implicit in his application that the proceedings will continue, subject to their being taken over by additional administrators. So far as the continuation of the proceedings is concerned, the conflict of interest, in Lord Millett’s words “real or perceived”, has been removed. Any question of a perception of lack of independence on the part of the administrators has been removed with it. It does not seem to me in those circumstances to be necessary or proportionate to appoint additional administrators as well. Any perceived defect in their position has been or will have been cured by the termination of the relationship. The position would, of course, have been different if Deloitte were seeking to continue both their relationship with Mr Holyoake and their pursuit of him in these proceedings.

The alternative basis on which Mr Holyoake’s case is put is that of confidential information. A claimant who seeks to restrain his former solicitor from acting in a matter for another client has to show (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interests of the other client is or may be adverse to his own: see per Lord Millet in Prince Jefri at 235 E. Lord Millett went on to say:

“But given the basis on which the jurisdiction is exercised, there is no cause to impute or attribute the knowledge of one partner to his fellow partners. Whether a particular individual is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case.”

I have no hesitation in concluding that confidential information was passed by Mr Holyoake to the fee earners who were advising him in connection with his tax affairs. I have equally no hesitation in concluding that that confidential information was relevant to the fraud proceedings which the administrators have commenced against him. The way in which Mr Holyoake has set up his personal assets and the discussions which he has had with Deloitte concerning the possible relocation of himself and other members of his family were plainly matters of relevance to the fraud proceedings. The crucial question, however, is whether there is any risk at all that the information confided to Deloitte in this way will be passed to the administrators.

In the Prince Jefri case both Pumfrey J and the House of Lords considered the barriers which had been put in place by a firm of accountants acting in a litigation role to be inadequate to prevent the transfer of confidential information between those who had acted for Prince Jefri in his litigation and other members of the firm who were acting in an interest hostile to him for another principal. These barriers had been erected ad-hoc within the forensic accountancy department, and were not natural institutional barriers already existing within the firm. They were inadequate to exclude completely the risk that information would be transferred on the facts of that particular case.

In the present case it is clear that the team which is responsible for the administration works in an entirely different office and as part of an entirely different group within Deloitte from the tax team which advised Mr Holyoake. Apart from one summer vacation student who is no longer working there, there has been no crossover of administrative or other personnel between the two teams. Mr Maton who led the tax team responsible for the management of Deloitte's relationship with Mr Holyoake has now retired. There is an information barrier between the two teams applicable to both electronic and hard copy information.

Mr Hollander drew attention to a provision of the retainer letter which is in the following terms:

“4.4

Deloitte may share Confidential Information with any D&T Party including any subcontractors that Deloitte may use to provide the Services (or more generally to support Deloitte's office administration) on the understanding that such D&T party is bound by an obligation to treat the information as confidential information on terms consistent with the terms of this clause 4.”

Mr Hollander suggested that this clause meant that Deloitte had the right to pass information within the organisation, subject only to keeping it confidential and using it for the purposes of providing the Services. However, I do not think that this clause gives rise to a risk that this right will be exercised, and no suggestion was made as to why, now that the retainer is at an end, it might be.

Mr Hollander also suggested that there may be cracks in even the most sophisticated of systems. He points to the case of the vacation student who had previously worked for the Holyoake tax team. But this seems to me to be miles away from anything which would give rise to a real risk of confidential information being transfected in the future.

I have therefore come to the conclusion that Mr Holyoake has not shown good cause why additional administrators should be appointed.

I propose to make an order on the Fortification Application that the cross-undertakings given by the claimants in the freezing orders which have been granted against the defendants in this action be fortified by the provision of a bank guarantee in the sum of £4 million.

I will also make an order dismissing the Conflict Application.