Tchenguiz & Anor v Serious Fraud Office & Ors

The background to these present proceedings is to be found in the judgment of the Divisional Court in judicial review proceedings with Claim Nos CO/4236/2011 and CO/4468/2011 (the “JR Proceedings”) delivered on 31 July 2012 with the reference [2012] EWHC 2254 (Admin) (the “DC Judgment”). Those proceedings concerned the business interests of two individuals i.e. Robert Tchenguiz (“RT”) and Vincent Tchenguiz (“VT”) and the companies and trusts through which their businesses are carried on in relation to what was and is said to be the unlawful entry, search and seizures by or at the instigation of the defendant (“SFO”) at certain premises in London as well as the arrests and investigations connected to this. In broad terms, there are two groups of claimants i.e. those referred to as the R&H or VT Claimants and those referred to as the RT Claimants. In summary, they say that the searches, arrest and investigation and the publicity surrounding them had a disastrous effect on their business interests causing very extensive financial losses and reputational harm; and they now seek damages in these proceedings in the total sum of approximately £300 million. The substantive hearing of that claim is now scheduled to take place in 2014.

This judgment deals with the VT claimants’ application under CPR 31.17 for third party disclosure from Stephen Akers and Mark McDonald, the liquidators of Oscatello Investments Limited (“the Joint Liquidators” and “Oscatello” respectively).

In particular, disclosure is sought of 5 specific documents (the “Reports”) which were prepared by a firm of accountants i.e. Grant Thornton (“GT”) on the instructions of the Joint Liquidators, who are also partners/directors of GT. These Reports were shown to the SFO by GT, but not permitted to be copied by the SFO. Thus, although the GT reports played what the claimants submit was a key role in the Information placed before HHJ Worsley by the SFO in March 2011 in support of the orders then sought by the SFO (the “Information”) and obtaining of the warrants, these will not be disclosed by the SFO in the present proceedings.

There is no similar formal application by the RT claimants but Mr Trower QC expressly agreed that no separate formal application was necessary. In effect, therefore, this application should be treated as an application on behalf of all claimants.

The application is opposed by the Joint Liquidators on three main grounds i.e. (i) necessity/relevance; (ii) litigation privilege; and (iii) discretion. In support of such opposition (in particular with regard to the claim for litigation privilege), the Joint Liquidators rely upon a statement dated 5 July 2013 of Mr John Verrill, a solicitor, licensed insolvency practitioner and partner in the firm of Chadbourne & Parke (London) LLP (“CP”). I deal below with each of these points in turn but it is convenient to summarise at the outset the role of the Joint Liquidators and the relevant background to the present application.

The facts relating to the appointment of the Joint Liquidators and their conduct of the liquidation are set out in Mr Verrill’s statement. Certain of such facts are or may be in issue but without prejudice to any such possible dispute in the future, it is convenient to adopt for present purposes the brief summary set out in Mr Trower’s skeleton argument which was as follows.

The Joint Liquidators act as liquidators of Oscatello and a number of additional companies registered in the British Virgin Islands (together the “Oscatello Companies”).

The Oscatello Companies formed part of a complex group of companies including their subsidiary undertakings which, at all material times (following a restructuring of the group in late 2007) were ultimately controlled by Investec Trust (Guernsey) Limited (“Investec”)and Bayeux Trustees Limited (together with Investec, the “TDT Trustees”) in their capacity as joint trustees of the Tchenguiz Discretionary Trust (the “TDT”).

The main beneficiaries of the TDT were Robert Tchenguiz (“RT”) and his children and remoter issue. The TDT was settled on 26 March 2007 by a declaration of trust made by, among others, Investec in its capacity as trustee of the Tchenguiz Family Trust (“TFT”), pursuant to a power to settle new trusts contained in the TFT instrument. The beneficiaries of the TFT include RT and his brother VT.

The Oscatello Companies performed two main roles: (i) they held positions by way of direct equity/debt investments; and (ii) they participated in large-scale derivatives and futures trading. Investment decisions were made by the TDT Trustees in conjunction with or at the direction of R20 Limited (“R20”). From around the date of the inception of the TDT in March 2007, R20 advised the TDT and the companies held under its umbrella (including the Oscatello Companies) on their general commercial and investment strategies. RT is a director of R20.

In around late 2007, the Oscatello Companies were restructured. A framework agreement providing the basis for the continued operation of the Oscatello Companies was concluded with, among others, the Icelandic bank Kaupthing hf (“Kaupthing”). Kaupthing and certain of its subsidiaries agreed to continue to fund the Oscatello Companies’ operations by way of an overdraft facility and other forms of lending, secured over shares in the Oscatello Companies. That funding was used principally for the purposes of purchasing and servicing equity and debt instruments in the form of contracts for differences and credit default swaps.

The amount of funding provided by Kaupthing to the Oscatello Companies increased rapidly throughout 2008, largely as a consequence of a need to meet margin calls as asset values deteriorated. By the end of 2008, Kaupthing had collapsed and the Oscatello Companies could no longer meet their obligations.

On 10 December 2008, Mr Akers and Mr McDonald were appointed as joint receivers over the shares of the Oscatello Companies.

On 18 August 2009, Mr Akers and Mr McDonald were appointed as joint liquidators of a number of the Oscatello Companies.

On 16 February 2010, Mr Akers and Mr McDonald were appointed as joint liquidators of Oscatello.

The appointment of Mr Akers and Mr McDonald as liquidators has been recognised in England and Wales by order of this court dated 31 March 2010 made pursuant to the terms of the Cross Border Insolvency Regulations 2006. Their appointment as liquidators has also been recognised in Guernsey by order of the Royal Court of Guernsey dated 21 April 2011.

The Joint Liquidators estimate that the shortfall in the assets of the Oscatello Companies to meet the claims of its creditors is in excess of £1,950,000,000.

The liquidation of the Oscatello Companies has been exceptionally complex. There has been worldwide litigation, including complex and hard fought proceedings in London, the Isle of Man, Guernsey and the British Virgin Islands. The Oscatello Companies have frequently found themselves on the other side of litigation to parties associated with RT and VT. One example is provided by the proceedings pending before the Royal Court of Guernsey. The Guernsey proceedings concern a claim by the TDT Trustees against Oscatello and others seeking to challenge the terms and enforceability of intra-group lending by the Oscatello Companies. RT is a protector of the TDT and gave oral evidence to the Guernsey Court.

According to Mr Verrill, it is likely that there will be further litigation between the Oscatello Companies and parties associated with VT and RT. In this regard:

The relevant background to the present application was summarised in Ms Phelps’ skeleton argument. For present purposes, it is convenient to adopt that summary subject to certain additions/amendments in the light of certain points made by Mr Trower.

The starting point is the Information. This referred extensively to the reports prepared by GT – for example, para 59 (referring to an “in depth analysis of Oscatello Investments Limited” done by GT); para 76: “Grant Thornton, who have been appointed by the Resolution Committee of Kaupthing Bank in the [sic] Iceland, have carried out extensive financial forensic analysis of this complex structure which was put forward by Robert TCHENGUIZ as collateral for the substantial borrowing from Kaupthing. A number of Reports have been prepared by Grant Thornton detailing their findings and these have been reviewed by the SFO.”; and para 125: “Grant Thornton has been appointed by the Resolution Committee in Iceland in order to analyse the Kaupthing lending to Tchenguiz connected companies and to consider potential offences and potential defendants.”

In the course of the JR proceedings, after the SFO had conceded that the warrants concerning VT should be quashed, the SFO (via the Treasury Solicitors “TSols”) wrote a detailed letter to the JR claimants dated 21 February 2012 relating to the errors in the Information. The letter stated that the investigation into VT had been triggered by a telephone call from GT on 9 September 2010, following which the SFO were permitted to view draft reports prepared by GT. It was obvious from that letter that detailed notes had been taken of the material provided by GT and viewed by the SFO.

In March 2012, well before the substantive JR hearing, the solicitors representing the JR claimants wrote to the solicitors for GT (Simmons & Simmons), enclosing a copy of TSols’ letter of 21 February 2012. The letter was copied to Mr Akers and stated that the substantive JR hearing was listed to start on 22 May 2012. The letter highlighted the concerns about the role played by GT in providing information to the SFO. The letter asked for copies of any documents shown to the SFO, and specifically asked GT (at para 43) to explain the basis for any assertion that the reports were privileged, including the identity of the person or persons on whose behalf the rights were being asserted. The letter ended by pointing out (in para 111) that it was intended to provide GT with an adequate opportunity to consider the concerns and to provide an answer to them before the substantive hearing and that the option of joining the proceedings as an interested party was available. It was also made clear that the correspondence would be placed before the court, as in the event happened.

In response, Simmons & Simmons for GT refused to provide the documents, on the basis, inter alia, that the information provided by GT to the SFO was information which GT received or prepared during the course of activities carried out on behalf of its client, the Resolution Committee of Kaupthing; and that information was confidential as a matter of Icelandic law and GT could not answer the questions raised without breaching professional rules of confidentiality. GT (via Simmons & Simmons) also declined to play any part in the substantive JR proceedings, which drew some criticism from the Divisional Court, as set out below. No mention was made by Simmons & Simmons in the letter of legal professional privilege, or of any alleged interest of the Joint Liquidators in the GT reports. The close involvement of GT was subsequently explained in more depth in a detailed witness statement submitted by Mr Brinkworth of the SFO.

Meanwhile, at a directions hearing on 22 February 2012, the SFO was ordered to serve evidence relating to the matters set out in the 21 February 2012 letter, essentially in order to explain the SFO’s position. In his statement served on 30 April

Mr Brinkworth’s statement went on to refer (as had the 21 February 2012 letter) to a number of GT reports which the SFO were permitted to view but not to copy apparently on the ground that they were privileged: see paras 26, 31 and 36. As set out in more detail below, detailed notes taken from a number of the Reports sought in this application were exhibited to Mr Brinkworth’s statement and referred to in open court during the course of the JR hearing. The DC Judgment recorded the reliance placed on GT by the SFO and in particular the following:

“It is now clear that the basis of much of what was said to be suspected criminality was based on information provided by Grant Thornton and to a lesser extent Weil, Gotshal and Manges. The Information disclosed that Grant Thornton had been appointed by the Resolution Committee to analyse the lending by Kaupthing and the entities connected with VT and RT. The Information disclosed the involvement of Grant Thornton in the allegations made against RT and in respect of Oscatello and the litigation against Oscatello to which we have referred at paragraph 30. (para 94)

…

This is a case where it appears that the SFO relied very heavily on the work and conclusions of Grant Thornton ...” (para 96)

The Divisional Court commented on the lack of co-operation of GT:

“195.

However, as we have set out at paragraphs 43-44 above, these allegations rest upon what the SFO were told by Grant Thornton on and after 9 September 2010. We only have the notes of the meeting and not the copy of the report of Grant Thornton. They declined in answer to a request from VT to make available the evidence on which such serious allegations were advanced to the SFO. We therefore do not know the basis of Grant Thornton's opinion on the valuation carried out by Oliver Wyman or their opinion on the acceptance of that valuation in the audited accounts. Certainly the allegation (which we have set out at paragraph 43) made by Grant Thornton to the SFO that VT may have misled the auditors as to the period on which the actuarial valuation was made was unfounded, the entire basis of valuation is recorded in note 7 to the accounts. Nor do we know the basis of the contention of Grant Thornton and the Resolution Committee that Kaupthing had not conducted due diligence.

196.

Lord Goldsmith severely criticised this conduct of Grant Thornton, having put them on notice on 15 March 2012 and invited them to become a party to the proceedings and to state whether the allegations were maintained. Grant Thornton acknowledged the receipt of this notice in a letter written by their solicitors on 9 May 2012. They stated that they would not become a party, they had not been served with the proceedings and were not in a position to provide information because of the confidentiality provisions of Icelandic law, the Code of Ethics of the Institute of Chartered Accountants and legal professional privilege. They contended that no criticism should be made of their conduct, as the SFO had accepted that the misstatements to the judge were its fault. Lord Goldsmith made clear that the fact that the allegations were still being maintained was continuing to have an adverse effect on the interests of TFT and VT and preventing TFT from repaying the Pennyrock loan.

197.

We do not consider that it is for us to comment on the conduct of Grant Thornton, save to say that it is unfortunate that the court does not know the basis for the criticism of the actuarial valuation and the audited accounts. It is perhaps difficult to understand how provisions of Icelandic law or the Code of Ethics of the Institute of Chartered Accountants or legal professional privilege could have permitted Grant Thornton to assist the SFO, after service of a s.2 notice, in making allegations of criminal conduct against RT and VT in relation to the valuation and the accounts, but not to be in a position to assist this court by providing the basis for those two specific allegations when VT and RT challenged by way of judicial review the case made against VT and RT by the SFO who had relied on Grant Thornton's views on those two specific allegations. From the observations we have made in paragraph 195, the provision of information would have been of assistance to the court.”

Following the DC Judgment, the VT Claimants renewed their requests for disclosure of the reports prepared by GT from Simmons & Simmons by letter dated 31 August 2012.

On 20 September 2012, Skadden Arps acting on behalf of the Joint Liquidators wrote to the Divisional Court with copies to various parties including the VT Claimants’ solicitors, Stephenson Harwood. The letter related to the then pending application to use documents from the JR proceedings for the purposes of other proceedings. The letter stated that such application was likely to relate to information and/or documents which belong to Oscatello and which were confidential and/or privileged. It asked that a copy of the application be provided, so that Oscatello could consider whether to intervene.

In the event, an order was subsequently made by the court dated 19 November 2012 which provided that Mr Brinkworth’s statement and exhibits be deemed to be in the public domain.

The VT Claimants again renewed their disclosure requests of the Reports on 13 February 2013. Notwithstanding extensive correspondence dating back to March 2012, there was, Ms Phelps submitted, no suggestion at this stage that the reports shown by GT to the SFO were prepared for anyone other than Kaupthing acting through its Resolution committee (‘ResCom’): see (i) Mr Brinkworth’s statement; (ii) the Simmons & Simmons letter referred to in paragraph 24 above, which referred in terms to the information being provided to the SFO on behalf of GT’s client, Kaupthing; and (iii) para 4 of the DC Judgment where it was stated:

“… in the account of the factual background we refer to Grant Thornton's reports. Grant Thornton and Weil, Gotshal and Manges were appointed on the collapse of Kaupthing by the group responsible for its affairs known as the Resolution Committee to seek to recover funds for the creditors. Their reports formed an important basis for the SFO's investigation, as we shall explain.”

On 15 March 2013, CP wrote to say that it had “recently” been instructed by the Joint Liquidators of Oscatello. They asked for time to consider the “ownership and control” of certain of the Reports in order to determine the scope of any litigation privilege attaching. Their further letter of 26 March 2013 described the 5 Reports the subject of this application and confirmed that they had been shown to the SFO. It was asserted that the Reports were covered by litigation privilege - a point which had not been taken by Simmons & Simmons during the JR itself. (As I understand, it was only in the letter from Skadden Apps dated 20 September 2012 referred to above that any question of privilege had previously been suggested.)

By letter dated 28 June 2013, Stephenson Harwood invited CP to explain properly the basis for the assertion that the Reports were privileged, but it was not until the service of Mr Verrill’s statement that any proper attempt was made to do this (beyond the bare assertions of the 26 March 2013 letter). This claim is considered further below.

In the meantime, other GT reports referred to in Mr Brinkworth’s statement were disclosed by Simmons & Simmons (letter 13 March 2013), who stated that Kaupthing (i.e. the successor to ResCom, the Winding Up Committee) considered the reports to be confidential but that, contrary to what Simmons & Simmons had previously asserted, Icelandic law would permit their disclosure. No point was taken in relation to privilege.

The RT Claimants also sought disclosure of the Reports in correspondence (letters 21 June 2013 and 2 July 2013).

The 5 Reports which are the subject of the present application are now described in paragraph 29 of Mr Verrill’s statement as follows:

Paragraph 29 of Mr Verrill’s statement also seeks to explain the basis upon which these Reports were “commissioned”. This is crucial to the present argument advanced by the Joint Liquidators that all 5 Reports attract litigation privilege; and it is therefore convenient to set out verbatim what Mr Verrill says in that paragraph:

“29.

The reports commissioned by the Joint Liquidators include the Reports which form the subject of the VT Claimants’ Application. I summarise the content of each of the Reports below. I am providing, as noted above, this summary of the general subject matter of the Reports in order to assist the Court in determining whether litigation privilege attaches to them and in no manner is this intended to be a waiver or partial waiver of privilege in the Reports:

(1)

the Joint Liquidators commissioned a draft report dated 23 August 2010, in order to assist the Joint Liquidators in formulating their response to the Guernsey Proceedings and to enable their Guernsey solicitors to provide instructions to counsel (“the First Draft Guernsey Report”). The First Draft Guernsey Report was included in instructions sent to Guernsey counsel on 15 November 2010. The recovery available to Oscatello in the Guernsey Proceedings, put forward by Investec, was materially different depending on a number of scenarios. The First Draft Guernsey Report was prepared entirely to enable the Joint Liquidators and their legal advisors to respond to the varying scenarios and to prepare a Defence and Counterclaim quantifying the amounts claimed. Specifically it was to identify all inter-company balances that should be reversed and to calculate the effect of the these balances/reversals on dividends to creditors;

(2)

the Joint Liquidators commissioned a draft report dated 21 December 2010, following a meeting with Counsel on 30 November 2010, the dominant purpose of which was to enable the Joint Liquidators to consider with Counsel the broader implications of the Guernsey Proceedings for the Oscatello Companies (“the Second Draft Guernsey Report”). In particular, the Second Draft Guernsey Report was produced following a request by the Joint Liquidators’ Guernsey counsel for a memorandum regarding the inter-company loans to assist Counsel in providing advice regarding litigation strategy. As stated in paragraph [26], the report was produced to help establish (a) how the original debts due from TFT arose, (b) whether these debts were properly described as loans, and if so, what the terms of the loans were, (c) the terms under which the debts due to Oscatello's subsidiary companies were novated to the TDT, as at 24 August 2007, and whether the debts were properly described as loans and if so, what the terms of the loans were, and (d) clarification as to the terms under which the debts due to Oscatello's subsidiaries were transferred from TDT to Oscatello as at 21 December 2007 and whether the debts were accurately described as loans, and if so, what the terms of the loans were. The report took the form of a summary and analysis of information obtained from the books and records of the Oscatello Companies. The report enabled the Joint Liquidators’ solicitors to fully understand the accounting treatment of the loan transactions to enable them to advise on strategy for the litigation proceedings in Guernsey. The Second Draft Guernsey report was sent to

Guernsey counsel on or around 21 December 2010;

(3)

the Joint Liquidators commissioned a draft memorandum dated 17 September 2010 on the formation and trading history of the Oscatello Companies (“the Draft Oscatello Memorandum”). The Draft Oscatello Memorandum was commissioned for the dominant purpose of enabling the Joint Liquidators to obtain information and legal advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, it addresses, among other things, various transactions which the Joint Liquidators consider unusual or irregular and identifies potential causes of action as well as the defendants to possible claims. The memorandum was produced to assist the Joint Liquidators in assessing the potential claims against other parties by Oscatello, and its related subsidiaries. It highlighted unusual and irregular transactions, specifically the Framework and Overdraft agreements, the position of other lenders in the Oscatello Group, a number of share transactions and CDS transactions and breaches of covenants and the validity of Framework agreement. The report went on to highlight the potential defendants to any claim made in respect of the above findings, these potential defendants include parties to the SFO proceedings HQ12XO5082 and HQ13XO0414. On or around 17 September 2010 the Oscatello Report was provided to the Liquidators legal advisors in London for the purposes of obtaining advice and formulating draft particulars of claim;

(4)

the Joint Liquidators commissioned a draft memorandum dated 25 October 2010 considering the circumstances surrounding the entry into certain contracts for difference and credit default swaps by Roxinda Limited (“Roxinda”), a member of the Oscatello Companies (“the Draft Roxinda Memorandum”). The Draft Roxinda Memorandum was commissioned for the dominant purpose of assisting the Joint Liquidators in connection with obtaining information and legal advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, it addresses, among other things, the circumstances surrounding the entry into certain contracts for differences and credit default swaps by Roxinda, at a time when it is believed Roxinda was insolvent, it also seeks to identify civil recovery opportunities. On or around 22 September 2011 the Draft Roxinda Report was provided to counsel in London for the purposes of obtaining advice and formulating draft particulars of claim; and

(5)

Following a meeting with Counsel on 30 November 2010, the Joint Liquidators commissioned a draft memorandum dated 22

December 2010 providing details of the individuals from R20 who were involved in the transactions referred to in the Oscatello Report (“the Draft R20 Report”). The Draft R20 Report was commissioned to brief Counsel and in order to assist the Joint Liquidators in obtaining information and advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, the Draft R20 report was commissioned following a request from the Joint Liquidators’ Counsel to enable him to advise on potential claims against various possible defendants identified in the Oscatello Report. The purpose of this report was to supplement the Oscatello Report and to set out the evidence needed to demonstrate which individuals from R20 were potentially involved with irregular and unusual transactions. On or around 22 December 2010 the R20 Report was provided to counsel in London for the purposes of obtaining advice and formulating draft particulars of claim.”

As I say, this explanation provides the foundation for the Joint Liquidators’ claim for litigation privilege. I consider this below but it is convenient to deal first with the related questions of necessity, relevance and discretion.

CPR 31.17(3) provides as follows:

The court may make an order under this rule only where –

As submitted by Mr Trower, there are three requirements that must be met for the court to grant an order for disclosure under CPR Part 31.17(3) viz:

In considering these matters, Mr Trower made plain that whilst the Joint Liquidators and their legal advisors have a general understanding of the issues raised by the present proceedings, they do not have the heightened understanding of the issues that the court will have through its case management of the proceedings; and that accordingly although they are not in a position to make detailed submissions on these matters, the Joint Liquidators wished to draw attention to the following points when the court is considering whether the jurisdictional gateways are satisfied in respect of each of the Reports. These points are as follows.

First, Mr Trower submitted that the court must be satisfied that the Reports are documents that are not merely (potentially) relevant to the issues in the present proceedings but are “likely” to support the case of the applicant or adversely affect the case of one of the other parties to the proceedings; and that this is, in effect, a much higher test than the one which applies with regard to ordinary disclosure inter partes. In that context, Mr Trower submitted that it was the Joint Liquidators’ understanding that VT’s arrest was based solely on the basis of his participation in a transaction referred to by the SFO as “the Pennyrock loan”, pursuant to which it was alleged that VT and RT obtained loan facilities from Kaupthing through substantial material and fraudulent misrepresentations; that only two of the Reports make references to the Pennyrock loan viz the Draft Oscatello Memorandum and the Draft R20 Report; and that, moreover, such references are very minor when seen in the context of the Reports as a whole.

Second, Mr Trower submitted that the court must also be satisfied that disclosure of the Reports is “necessary”to dispose fairly of the claim or to save costs. In that context, Mr Trower submitted that the court may decide that it is not necessary to

Third, Mr Trower submitted that even if the requirements of CPR Part 31.17 are otherwise satisfied, the court must be satisfied that the case is an appropriate one for the exercise of its discretion to order disclosure when weighing up competing public interests: Disclosure, Matthews and Malek, at para 4.64. In that context, Mr Trower submitted that two such competing interests arise for consideration in the present case viz:

I accept the broad thrust of these submissions to the extent that they relate to the court’s approach to the present application and the general considerations which the court should consider before deciding to make any order for disclosure. I also bear well in mind the importance of not pre-judging any issue which the court will ultimately have to determine in the course of the present proceedings.

However, bearing all these considerations in mind, I am quite sure that, subject to the question of litigation privilege, the requirements of CPR Part 31.17 are satisfied and that the case is an appropriate one for the exercise of its discretion. In summary, this is for the reasons as summarised in paragraphs 27-28 of Ms Phelps’ skeleton argument which I accept viz:

Thus, it is my conclusion that it is in principle necessary and appropriate to make an order against the Joint Liquidators for disclosure of all 5 Reports subject (i) to any special order with regard to confidentiality and use of such Reports (as to which I would hope the parties will be able to agree an appropriate draft form of wording for my approval); and (ii) litigation privilege.

Under this head, two main issues arose. First, there is the threshold question viz whether the documents are properly the subject of a claim for litigation privilege. Second, on the assumption that the claim for litigation privilege is prima facie made out, whether such privilege has been “lost” by virtue of the fact that the documents (or at least the information contained in such documents) are no longer “confidential” but, on the contrary, are now in the “public domain”.

As to the first question, Ms Phelps submitted that the applicable principles were as follows:

I accept those submissions apart from the proposition as formulated in sub-paragraph (v) which seems to me at least arguably to go beyond what is stated in Dornoch.

Further, Ms Phelps submitted (and I accept) that the court should look at the present claims to privilege with “anxious scrutiny” for two main reasons viz:

In support of the claim for privilege, Mr Trower submitted that litigation privilege will attach to a document where the document was produced for the dominant purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of, such litigation: see Waugh v British Railways Board [1980] AC 521, at 542G-544C per Lord Edmund-Davies; that the evidence contained in paragraph 29 of the Mr Verrill’s statement as I have quoted above establishes that the documents were indeed produced for such “dominant purpose”; and that accordingly the documents were and are the subject of litigation privilege. Further, Mr Trower submitted that if the documents are so privileged then, subject to any loss or waiver of privilege, the privilege cannot be overridden by any other public interest. The latter proposition was not in dispute and is one which I readily accept. However, the main issue in this context was whether the evidence contained in Mr Verrill’s statement is sufficient to justify the claim to litigation privilege in relation to one or more of the Reports. In my view, it is not for the reasons set out below.

First, as submitted by Ms Phelps, it is important to bear in mind that Mr Verrill is not the individual who was involved in producing any of the Reports; nor was he involved in relation to the instructions given at the time to order such production. However, as submitted by Mr Trower, that is not necessarily fatal. Notwithstanding the observations made in the cases referred to by Ms Phelps, I see no reason in principle why someone in the position of Mr Verrill (who is, in his capacity as a solicitor, an officer of the court) should not give evidence as to the provenance and purpose for which a document is produced on information and belief. However, if that is done, I accept that it is entirely proper and justifiable to subject such evidence a fortiori to “anxious scrutiny” in particular because of the difficulties in going behind that evidence. I did not understand Mr Trower to disagree with that approach although he submitted that if I was not satisfied with the evidence as it stood, I could and should in effect adjourn the matter to permit cross-examination of Mr Verrill or to allow the Joint Liquidators to put in further evidence. I do not accept that submission at least in the circumstances of the present case. The Joint Liquidators have had ample notice of this application and I see no reason why they should be given what would in effect be a second bite at the cherry. That does not seem to me to be consistent with the overriding objective.

Second, it is perhaps an obvious point - but one worth emphasising in the present context - that the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found a claim for litigation privilege. It is onlyif such purpose is one which can properly be characterised as the “dominant purpose” that such claim for litigation privilege can properly be sustained. So much is manifest from Waugh. Inevitably, difficulties arise where documents are produced for a dual purpose. Further, I recognise that such difficulties are or may be particularly acute where documents come into existence, as in the present case, on the instructions of liquidators who are under statutory duties with regard (so far as possible) to the orderly collection of assets and settlement of liabilities. In the first instance at least, the proper performance of such duties may require the liquidators to obtain information simply to identify what (if any) assets or liabilities exist or perhaps what legal proceedings might possibly be brought against any third parties. Ultimately, once obtained, such information may well be important to enable liquidators to decide what if any legal proceedings might possibly be pursued; and, further down the line, such information may in fact be used for or in connection with pending or contemplated litigation or of conducting or aiding in the conduct of such litigation. However, unless such documents were originally produced for the “dominant purpose” as stated above, they cannot, in my view, be the subject of a proper claim for litigation privilege.

Some at least of these difficulties were the focus of the decision of Millett J in Price Waterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583. Although that decision was reversed in a later case on another point, the observations of the learned Judge at pp590c – 591a are, in my view, particularly relevant in the present context:

“The board of BCCI, the auditors, and the regulatory authorities all needed to know what was the true financial position of BCCI, and this required an investigation in order to establish the facts. If BCCI itself or its controlling shareholders did not set an investigation in motion, it was feared that the regulatory authorities would. BCCI's financial position depended, in part at least, on the recoverability of the problem loans and that might require legal advice as to the prospects of success if resort had to be made to legal proceedings. But just as in Waugh v British Railways Board the board needed to establish the facts whether or not litigation ensued, so the board of BCCI, the auditors and the controlling shareholders needed to establish BCCI's financial position whether or not recovery proceedings were necessary.

Given that the dominant purpose of the investigation was to establish the facts necessary to enable BCCI's financial position to be determined, documents brought into existence in the course of the investigation did not in my judgment attract legal professional privilege merely because legal advice might be necessary in order fully to evaluate the financial implications of the facts. The obtaining of legal advice is not an end in itself. To attract privilege it must be for the purpose of actual or contemplated proceedings. In Re Highgrade Traders Ltd a claim to privilege was raised in respect of reports obtained by insurers who were suspicious of the circumstances attending a fire on the premises of their insured. Oliver LJ said ([1984] BCLC 151 at 173):

'What, then, was the purpose of the reports? The learned judge found a duality of purpose because, he said, the insurers wanted not only to obtain the advice of their solicitors, but also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite inseparable. The insurers were not seeking the cause of the fire as a matter of academic interest in spontaneous combustion. Their purpose in instigating the inquiries can only be determined by asking why they needed to find out the cause of the fire. And the only reason that can be ascribed to them is that of ascertaining whether, as they suspected, it had been fraudulently started by the insured. It was entirely clear that, if the claim was persisted in and if it was resisted, litigation would inevitably follow.'

In the present case it was necessary to determine the extent towhich the problem loans were recoverable, in order toestablish BCCI's financial position and to decide whetherrecovery proceedings should be taken. But the two purposewere quite independent of each other. There was nothing ofmerely academic interest in the former; it was of vital concernnot only to BCCI, but also to the controlling shareholders, theauditors, and the regulatory authorities. I am satisfied that thiswas the dominant purpose of the investigation, and was quiteindependent of the possible need to take recovery proceedings,and that accordingly the documents in question do not attractlegal professional privilege.” (emphasis added)

This passage is, in my view, important because it illustrates the relatively high threshold imposed by the “dominant purpose” test; and serves to emphasise that if, for example, documents are produced to determine the extent to which “problem loans” are recoverable in order to establish the financial position of a company, such exercise is quite independent of the possible need to take recovery proceedings and will not (at least on that basis) attract litigation privilege. However, I fully recognise that each case must turn on its own facts, the essential question in each case being whether, with regard to particular documents or classes of documents, the party claiming the privilege can satisfy the “dominant purpose” test.

Bearing these considerations in mind, I turn to consider Mr Verrill’s evidence as quoted above with regard to each of the Reports.

This draft Report is dealt with in paragraph 29(1) of Mr Verrill’s statement. The first thing to note is that the date referred to is the date of the Report itself; Mr Verrill does not state when this report was “commissioned” although it would seem that the Report must have been prepared after the commencement of the Guernsey Proceedings. However, Mr Verrill does not in terms say explicitly that this document

This draft Reportis dealt with in paragraph 29(2) of Mr Verrill’s statement. Again, I note that he does not state when it was “commissioned” although he does say that it was commissioned following a meeting with Counsel on 30 November 2010; and it must have been produced shortly thereafter because Mr Verrill states that it was sent to Guernsey counsel on or around 21 December 2010. Thus, the report was plainly prepared after the commencement of the Guernsey Proceedings. Here, Mr Verrill’s language is different from what he says in relation to the First Draft Guernsey Report. In particular, he states explicitly that this Report was commissioned for the “dominant purpose … to enable the Joint Liquidators to consider with Counsel the broader implications of the Guernsey Proceedings for the Oscatello Companies.” Even this, however, is somewhat vague. What, might one ask, are the “broader implications” here referred to? If this is intended to refer to the financial consequences of the various possible outcomes of the Guernsey Proceedings then I am extremely doubtful that this would give rise to litigation privilege. Mr Verrill then states that this draft Report was produced “... following a request by the Joint Liquidators counsel for a memorandum regarding the inter-company loans to assist Counsel in producing advice regarding litigation strategy.” Mr Verrill then goes on to explain in some detail that the draft Report was produced to “help establish” certain matters; and took the form of “… a summary and analysis of information obtained from the books and records of the Oscatello Companies”. I am prepared to accept that the production of this summary and analysis of Oscatello’s books and records was important even perhaps essential for the purpose of deciding litigation strategy in the Guernsey Proceedings. However, it seems to me that it does not necessarily follow that this satisfies the “dominant purpose” test. Again, it seems to me that the last sentence of this paragraph in Mr Verrill’s statement is important: “The report enabled the Joint Liquidators’ solicitors to fully understand the accounting treatment of the loan transactions to enable them to advise on strategy for the litigation proceedings in Guernsey.” If, as this sentence would appear to suggest, such draft Report was necessary in order for the Joint Liquidators’ solicitors to understand the accounting treatment of the loan transactions, then it seems to me difficult to see how the dominant purpose test is satisfied even if, as Mr Verrill also states, this was to enable the solicitors to advise on strategy for the litigation. If such document did not exist already, it also seems to me difficult to understand how the Joint Liquidators could perform their basic statutory duties. For all these reasons, I am not satisfied that the dominant purpose test is satisfied in respect of this draft Report.

This draft Memorandum is dealt with in paragraph 29(3) of Mr Verrill’s statement. It is important to note that the explanation given as to the purpose for which it was produced is very different from either of the first two draft reports viz it has nothing to do with the Guernsey Proceedings nor any other then existing proceedings. Rather, Mr Verrill states that it was commissioned “… on the formation and trading history of the Oscatello Companies”. Again, although Mr Verrill gives the date of the draft Memorandum, it is noteworthy that he does not state the date when it was actually “commissioned”. He then goes on to state that it was commissioned for the dominant purpose of enabling the Joint Liquidators “… to obtain information and advice in connection with litigation which was, and remains, contemplated against various potential defendants”. Although the magic words “dominant purpose” are used, it seems to me significant that there were no relevant extant proceedings at that stage and although he does indeed say that litigation “… was, and remains contemplated …”, such statement is, to my mind, entirely vague and lacks specificity. For example, Mr Verrill states that such litigation was and remains contemplated “… against potential defendants…” but does not specify who such potential defendants might be. On the contrary, Mr Verrill goes on to state that the draft Memorandum addresses, among other things, various transactions which the Joint Liquidators consider unusual or irregular and “… identifies potential causes of action as well as the defendants to possible claims” (emphasis added). Although it is true that Mr Verrill then states that the draft Memorandum highlighted a number of what are said to be “unusual and irregular” specific transactions and potential defendants, such language – in particular the reference to “potential” causes of action and “possible claims” – seems to me to fall far short of the necessary threshold as referred to in the cases cited above i.e. United States of America v Philip Morris & British American Tobacco [2004] EWCA Civ 330 at paras 67-68; Westminster International v Dornoch Ltd [2009] EWCA Civ 1323 at paras [19] – [20] (Etherton LJ). Mr Trower emphasised that the fact that this draft Memorandum was, as stated by Mr Verrill, provided to the Joint Liquidators’ legal advisors in London for the purpose of obtaining advice and formulating draft particulars of claim on 17 September (i.e. on the same date of the draft Memorandum) supports the claim for litigation privilege. In broad terms, that may well be so. However, it seems to me that the critical question is what was the purpose for which the draft Memorandum was originally produced rather than its

For all these reasons, I am not satisfied that the dominant purpose test is satisfied in respect of this draft Report.

This draft Memorandum is dealt with in paragraph 29(4) of Mr Verrill’s statement. Although Mr Verrill again uses the magic words – “dominant purpose” – I would make similar comments to those in respect of the draft Oscatello Memorandum which I have just set out above and need not repeat. It is true that although Mr Verrill explains that this draft Memorandum addresses the circumstances surrounding the entry into certain contracts and also seeks to identify what are described as “civil recovery opportunities”, it seems to me that this language again falls short of the necessary threshold of litigation having to be reasonably in prospect. Further, I should note that Ms Phelps relied on the fact that, according to Mr Verrill, although this Memorandum is dated 25 October 2010, it was not provided to counsel in London until almost a year later i.e. 22 September 2011; and I agree that this further supports the conclusion which I have reached i.e. that the dominant purpose test is not satisfied in respect of this draft Memorandum.

This draft Report is dealt with in paragraph 29(5) of Mr Verrill’s statement. I originally considered that the explanation provided there by Mr Verrill in relation to the production of this draft Report set out the strongest case for litigation privilege. In particular, it is noteworthy that Mr Verrill’s evidence is that such draft Report was commissioned at a later stage i.e. following a meeting (on 30 November 2010) with - and a specific request by - the Joint Liquidators’ counsel for a document providing details of the individuals from R20 who were involved in the transactions referred to in the Oscatello Report (which I understand to refer to the Draft Oscatello Memorandum); and it was provided shortly thereafter on 22 December 2010 to counsel “… for the purposes of obtaining advice and formulating draft particulars of claim”. However, again, it seems to me that Mr Verrill’s statement falls short of establishing that there was even at this stage any relevant litigation which was “reasonably in prospect” as opposed to a mere possibility. Thus, Mr Verrill states that this draft Report was commissioned “… to enable [Counsel] to advise on potential claims against various possible defendants identified in the Oscatello Report …” (emphasis added). Again, it seems to me that this conclusion is fortified by the fact, as submitted by Ms Phelps, that even now (i.e. some 2½ years later), no litigation has been instituted.

For all these reasons, it is my conclusion that the dominant purpose test has not been satisfied in respect of this draft Report.

Ms Phelps submitted that, at least with regard to three of the Reports i.e. the First Draft Guernsey Report, the Oscatello Memorandum and the draft R20 Report, even if such Reports were initially the subject of litigation privilege, nevertheless such privilege was lost. In essence, this was, she submitted, because there had been a loss of confidentiality in respect of such Reports and that the information contained in them was now in the public domain.

Given my conclusions as stated above, this point does not arise for decision. However, both Ms Phelps and Mr Trower addressed me on the point and I propose to deal with it briefly.

First, at the risk of repetition, it is convenient to summarise the factual foundation of Ms Phelps’ submission viz. that as appears from Mr Brinkworth’s statement, copies of these three Reports were shown to the SFO; detailed notes of such Reports were taken by the SFO; such notes were then exhibited to Mr Brinkworth’s statement, adduced in evidence in open court during the JR hearing before the Divisional Court and referred to extensively both in argument and in the DC Judgment; and the Divisional Court made a specific order that all of the exhibits to Mr Brinkworth’s statement including specifically these notes were in the “public domain”. These matters were not in dispute.

Second, it is important to emphasise the limited nature of the argument. In particular, Ms Phelps did not suggest that there had been any specific waiver as such. Nor did she suggest that there had been any “collateral waiver”. This is relevant because, relying upon Mr Verrill’s statement, Mr Trower submitted that the disclosure of the information contained in the three Reports referred to above had, in effect, been made without the authority of the Joint Liquidators. In particular, Mr Trower submitted that the position was, in summary, as follows:

The “no authority point” was hotly disputed on the part of the claimants. However, Ms Phelps submitted that, in any event, the cat was now out of the bag; and that, at least so far as the argument concerning loss of confidentiality is concerned, it matters not whether such escape was with or without the authority of the Joint Liquidators. That was also a matter of dispute but, for present purposes, I am prepared to assume in favour of the claimants that that proposition is correct; and that on this basis it is unnecessary to resolve the “no authority point”.

Third, as to the applicable principles, Mr Trower submitted in summary as follows:

Ms Phelps submitted, in effect, that although such submissions may be relevant in the context of “waiver” of privilege, they are not relevant here where the issue is one of loss of confidentiality. In support of that submission, Ms Phelps submitted in summary as follows:

For present purposes, I am prepared to assume in favour of the claimants that these propositions are correct. However, as submitted by Mr Trower, it seems to me that even on the assumption that there was a loss of confidentiality in respect of the information contained in the notes as exhibited to Mr Brinkworth’s statement, it does not necessarily follow that there was or is a loss of confidentiality in the three Reports themselves. In that context, Ms Phelps submitted that the material reproduced in the notes taken by the SFO investigators and exhibited to Mr Brinkworth’s statement is

I am unable to accept the thrust of these submissions. As to Chandris, it seems to me that, as submitted by Mr Trower, that case is distinguishable as it concerned a waiver of privilege by the person entitled to assert it. Here, as I have stated, Ms Phelps has expressly disavowed any reliance on “waiver” or “collateral waiver” but advanced the claimants’ case on the basis simply of loss of confidentiality. In that context, even on the assumption that the relevant Reports have been “substantially reproduced” in the notes, it seems to me that the only relevant loss of confidentiality which has occurred is in respect of the information actually set out in the notes taken by the SFO and exhibited to Mr Brinkworth’s statement – no more, no less. However, the Reports themselves are not in the public domain; and in my judgment, it follows that there has been no loss of confidentiality in such Reports.

It might be thought that this conclusion rests on a fine distinction which has no merit. However, it seems to me necessarily to follow from the limited nature of the argument advanced by Ms Phelps which is based simply on alleged loss of confidentiality and not on any waiver or collateral waiver.

Be all this as it may, I should repeat that the arguments relating to loss of confidentiality are, in my judgment, irrelevant given my earlier conclusion that the Joint Liquidators’ claim to assert litigation privilege in respect of the 5 Reports fails.

For these reasons, it is my conclusion that the Joint Liquidators’ claim to assert litigation privilege in respect of the 5 Reports fails. Counsel are accordingly requested to seek to agree a draft order together (including any specific terms with regard to confidentiality and use of the Reports as referred to above, costs and any other consequential matters). Failing agreement, I will deal with any outstanding issues.