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Cite as: [2010] EWHC 2176 (Ch), [2011] 2 WLR 496, [2010] 2 CLC 248, [2011] 2 All ER 297, [2011] Bus LR 466, [2011] Ch 296

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Neutral Citation Number: [2010] EWHC 2176 (Ch)
Case No: HC09C04618

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL
20 August 2010

B e f o r e :

Mr Justice Norris
____________________

Between:
(1) BBGP Managing General Partner Limited
(2) BBGP Special Limited Partner LP
(3) B & B BBGP Investor
(4) Babcock and Brown International Pty Ltd
(5) Babcock and Brown Ltd

Claimants
and -

Babcock & Brown Global Partners


Defendants

____________________

Mr J Crow QC and Mr P Goodall (instructed by Freshfields Bruckhaus Derringer) for the Claimants
Mr R Millett QC and Mr S Dhar(instructed by Thomas Eggar) also for the Claimants
Mr C Moger QC and Mr R Ritchie (instructed by Simmons & Simmons) for the Defendants
Hearing dates: 21 - 23 and 26 - 27 July 2010

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr Justice Norris :

  1. The Babcock & Brown Group ("B&B Group") is a global investment, fund management and advisory group originally based in Australia. It undertook the provision of structured finance and the creation, syndication and management of asset and cash-flow based investments. There was a demand for it to establish a co-investment fund to afford investors (hedge funds, asset management funds, trusts, individuals and partnerships) to take advantage of opportunities identified by the B&B Group for its own investment. For that purpose Babcock & Brown Global Partners ("Global") was established.
  2. Global is an English limited partnership operating under the Limited Partnerships Act 1907 and under a Partnership Deed dated 1 July 2005 ("the Deed"). Section 6 of the 1907 Act provides:-
  3. "A limited partner shall not take part in the management of the partnership business, and shall not have power to bind the firm: Provided that a limited partner may… at any time inspect the books of the firm and examine into the state and prospects of the partnership business, and may advise with the partners thereon."

    The management of the partnership business is undertaken by the general (or managing) partners, and it is they who have authority to bind the firm. Under the Deed the general or managing partner was BBMGP Managing General Partner Limited ("General"). General was a Cayman company whose shares were owned by a member of the B&B Group (and ultimately by the Fourth Claimant). The original limited partners were the Second Claimant BBGP Special Limited Partner LP and the Third Claimant B&B BBGP Investor. Although they were both B&B Group entities, they were not mere ciphers: they ultimately provided approximately 12% of the partnership commitments. Under Deeds of Adherence a further 130 limited partners contributed the balance of the €372 million fund. Amongst these limited partners were members of the B&B Group senior management.

  4. Disputes arose between the B&B Group and Global about how to deal with some of their joint investments. Eventually within Global disputes also arose between the managing general partner and the limited partners. On 18 October 2009 General was removed as managing general partner of Global by the limited partners. On 18 November 2009 the limited partners appointed Global Partners Fund Ltd ("GPF") to be the new managing general partner of Global. It was therefore necessary for General to transfer Global's books documents and records to GPF.
  5. The books documents and records were all held in digital form on the B&B Group database. In the course of separating out Global's materials and ensuring that material confidential to the B&B Group and to General was not handed over to GPF, Freshfields (to whom the task had been entrusted, given the existence of disputes) soon discovered that on the B&B Group database was legal advice from Slaughter and May. It was not immediately apparent whom Slaughter and May were advising. Freshfields therefore ceased their review and instructed Mr Bankim Thanki QC to prepare an independent expert report on whether any documents were confidential or privileged. Freshfields then canvassed his views with Slaughter and May, whose response was that they must assert all rights to claim privilege and/or confidentiality . As a result Freshfields ceased their review, the B&B Group and General did not demand to see the material, and a separate legal team from Thomas Eggar was instructed to inspect Global's material on B&B Group database but to keep their knowledge behind an information barrier. Obviously some material, such as correspondence passing between the parties or their solicitors, is open and available to all ("the open material"): but some is known only to Thomas Eggar ("the closed material").
  6. Solicitors for Global suggested that an independent solicitor might review the material and decide where the line between the open material and the closed material should be drawn. But Freshfields said (correctly in my view) that it was inevitable that the questions of principle would have to be grappled with. The present Part 8 claim was started. By it the Claimants seek a declaration that none of them is precluded by any professional privilege available to any client of Slaughter and May from inspecting any part of the data recorded on the B&B Group servers. Global has not sought to cross examine any of the Claimants witnesses: nor did Global seek a direction for disclosure in the Part 8 claim. In those circumstances I am unreceptive to arguments that the material before the court is not adequate to enable me to consider granting the relief sought.
  7. The claim was argued between Mr Crow QC and Mr Goodall for the Claimants, and Mr Moger QC and Mr Ritchie for Global using the open material. I then took a morning to reflect on the arguments I had heard and form my views. I then heard argument from Mr Millett QC and Mr Dhar for the Claimants and Mr Moger QC and Mr Ritchie for Global on the closed material (which I then read de bene esse).
  8. Global argued that I should not consider the claim since it posed a question in the abstract: it would be better to await a pleaded claim and an application by the Claimants for disclosure against defined issues. General argued that it needed to know where it stood:-
  9. (a) Because it has commenced proceedings in the Commercial Court against Global and against GPF (arising out of its dismissal as managing general partner, claiming €7 million in unpaid management fees and €10 million in compensation) in which it is due to file and serve its Particulars of Claim by 23 September 2010 (although there is provision for an extension) and it needs to know what it can plead;
    (b) Because a claim has been brought against it by Global and it needs to know what material it may deploy in its defence;
    (c) Because it needs to achieve an orderly handover of books documents and records to GPF without compromising the confidentiality in its own documents;
    (d) Because it needs for its own commercial purposes to have access to its own documents on its own database.
  10. I propose to consider the claim for relief. The questions arising do not relate to disclosure. The claimants have possession and control of all of the material on their own database. They do not need the compulsive effect of CPR 31 to gain access to it: they do not need to assert any right to disclosure as against Global. They already have the ability look at the closed material: it is only their desire "to do the right thing" that brings them to Court. If Global wanted an issue formulated then Global should have sought an injunction to restrain General from inspecting defined documents or specified categories of the closed material, on the footing that although it is within General's power, possession and control there is some equitable or privacy right or some privilege that would be infringed by examination or use of the closed material: Goddard v Nationwide BS [1987] QB 670, Guinness Peat v Fitzroy Robinson Partnership [1987] 1 WLR 1027, Derby v Weldon (No.8) [1991] 1 WLR 73. Global knows exactly what material was produced in connection with legal advice because Slaughter and May have prepared 45 lever-arch files relating to their involvement in Global's affairs. No application was made. (In referring to "Global" I am simply using that term conveniently to describe the 130-odd limited partners and GPF who together now constitute the firm, and any one or more of whom could have advanced a positive claim to confidentiality, privacy or privilege).
  11. It is necessary to start with the legal relationships, beginning with Global. Global is not a legal person. Global is a collection of legal persons. Their rights and obligations as partners as between themselves are defined by the Deed and by the 1907 Act. Their rights and obligations as partners in relation to the outside world are created by General (which alone has authority to act on behalf of and in the name of Global and to commit Global to the performance of any obligation).
  12. The Deed provides:-
  13. (a) by clause 5.1 that General has (i) exclusive responsibility for the operation of the partnership and management and control of its business and affairs and (ii) full power and authority to bind the partnership;
    (b) by clause 5.2 that the limited partners shall take no part in the operation of the partnership and shall have no right or authority to act for the partnership or to take any part in or in any way to interfere in the conduct or management of the partnership other than as provided by the 1907 Act;
    (c) by clause 5.3.1 that General has full power and authority to negotiate investment opportunities, procure the provision of office facilities and executive staff, to conduct litigation relating to the partnership, to pay fees and expenses (including its own management fee), and to engage lawyers and other advisers;
    (d) by clause 5.5.1 that the partnership would be responsible for all expenses incurred in relation to the administration and business of the partnership ( including legal fees);
    (e) by clause 9 that General would be entitled to receive out of the partnership funds a management fee calculated by reference to the acquisition cost of investments held by the partnership;
    (f) by clause 10 that every partner ( which included General) had an interest in every asset of the partnership and that the gross income of the partnership reduced by the expenses of the partnership should be allocated in proportion to their capital contributions: the effect of this was that Generals management fee and recoverable disbursements were effectively a first charge on the partnership funds with the balance being distributable amongst the founders and the investors;
    (g) by clause 11.4 that General should not be obliged to cause the partnership to make any distribution if it might leave the partnership with insufficient funds to meet any future obligations ( including the management fee);
    (h) by clause 11.7 that General should be entitled to draw quarterly in advance instalments of its management fee;
    (i) by clause 14.4.1 that investors holding at least 75% of the relevant commitments could by resolution remove General which would entitle General to compensation in the amount of two times the management fee in respect of the calendar year immediately prior to that in which termination occurred;
    (j) by clause 14.4.2 that General could be removed in like manner without compensation if the termination was in respect of General's "fraud, gross negligence, wilful misconduct, bad faith or reckless disregard of its obligations and duties as general partner";
    (k) by clause 16 that an Advisory Board should be constituted which was to be consulted by General on the governance of the partnership (including conflicts of interest arising in the management of the partnership otherwise than in the ordinary course of its business with the B & B Group) and compliance with the investment mandate;
    (l) by clause 17 that General would not have any liability for loss to any partner in connection with the services it performed save in respect of any matter resulting from fraud, wilful misconduct, bad faith or reckless disregard of obligation and duty;
    (m) by clause 18.2.1 that the limited partners should not disclose to any outsider any confidential information or use it to the detriment of the partnership or any of the partners (which includes General) other than in connection with claims against such parties in respect of any breach of their obligations under the Deed any confidential information.
  14. Aside from these specific contractual obligations each of the partners owed to the others a duty of honesty and good faith in relation to the partnership business (including a duty not to use for personal advantage powers which are conferred as partner). The principle applies as much to limited partnerships as to other partnerships (notwithstanding the absence of general agency).
  15. General was itself a company. It could act only by its Board of Directors and any agents to whom they had delegated relevant responsibilities. The Board consisted of two Cayman professionals (Mr Mahoney and Mr Farjallah) and an employee of the B&B Group (Mr Hanson). Mr Hanson was seconded to General and he was its effective executive director. Although there was no formal delegation to him Mr Mahoney and Mr Farjallah were not in fact involved in the day-to-day investment management business of General. Their expectation and practice was to be advised of the key decisions and events (such as investment and divestments decisions) and any legal issues arising, and to decide only such matters. Mr Hanson was assisted by Mr Drastik and Mr Stahel (all three being employees of the Fifth Claimant) and they constituted the fund management team ("FMT"). They used the facilities available to them as employees of the B&B Group to ensure that General discharged its fund management and other obligations as managing partner (as had been contemplated when General was established). On the assumption that Cayman law is the same as English law (the basis on which the case was argued) Mr Hanson owed as a director a duty of honesty and good faith to General; this duty encompassed an obligation not to use for personal advantage powers entrusted to him as director or delegate. Mr Hanson was also a limited partner in Global.
  16. In some of the evidence, correspondence and argument there was a tendency to treat these separate sets of relationships as one. But it is in my view important always to bear in mind that Mr Hanson owed duties to General (as director and as delegated agent): and General (as managing partner) owed duties to each of the constituent partners of Global.
  17. I turn to the relevant facts. In the autumn of 2008 the fortunes of the B&B Group suffered a downturn and there was the prospect of some Australian group members entering insolvency. This caused disquiet amongst the investors in Global. In particular the B&B Group's need for cash (or the appointment of office holders over some B&B Group assets) might mean that investments (in which Global co-invested) might be realised on unfavourable terms. Mr Hanson disclosed to the B&B Group senior management that he and the other members of the FMT saw it as their duty (that is, their duty as director or delegated agent of General) to protect the interests of the investors in Global at the expense of the interests of the wider B&B Group. This was understood and agreed. There were three investments in particular in which there were concerns that the B&B Group had acted in its own interests and at the expense of its co-investors in Global: they were eircom, Coinmach, and Westnet Rail. Because of the dispute between Global and the B&B Group, General agreed not to collect its management fee quarterly in advance, leaving the money as an undistributed cash fund subject to the distribution provisions of the Deed.
  18. On 23 October 2008 the FMT informed Mr Mahoney and Mr Farjallah that Slaughter and May had been requested to provide certain legal advice for Global, and they were requested to provide material to assist the solicitors to complete the "know your client" process in relation to General.
  19. On 26 November 2008 Slaughter and May sent their "Rule 2" client care letter. They addressed it to
  20. "Babcock & Brown Global Partners
    BBGP Managing General Partner Ltd"

    at General's Cayman address, marked for the attention of Mr Hanson. Slaughter and May said they had been instructed "in relation to the affairs of Babcock & Brown Global Partners… in the context of Babcock & Brown group's ongoing liquidity difficulties and potential breaches of contract and/or fiduciary duty". The letter recorded Slaughter and May's understanding of their client's objectives as being

    "to secure the best possible ongoing arrangements for the management of the [Global] portfolio as well as to secure, as far as possible, damages for breach of contract and fiduciary duty from any relevant members of the Babcock & Brown group".

    I take judicial notice of the fact that in a fast moving commercial context it would not be unusual for advice to be tendered under a retainer before the client care letter was despatched. The substantial period between notice to the Board of General that Slaughter and May had been retained and the despatch of the client care letter (together with the amount of fees taken soon after the end of November) and the reference in the client care letter itself to prior meetings suggest that that is so in this case.

  21. The open material discloses that the tone of the retainer letter was borne out in practice. Instructions were received from and advice tendered to Mr Hanson, with some of the limited partners being copied in on communications, and with other members of the FMT making contributions.
  22. On 3 December 2008 there was a meeting of some of the limited partners in Global that was addressed by Slaughter and May. The immediate cause for concern was the potential entry into administration of the Australian holding company. Slaughter and May advised that this would make no difference to the legal position of Global, but that it was always possible that at some stage after administration "obligations" would not be honoured. Slaughter and May pointed out that the limited partners always had the option of dismissing General. If such dismissal was without fault Global would need to pay a fee: but if for gross negligence then dismissal could take place at any time.
  23. Between December 2008 and January 2009 Slaughter and May were paid some £350,000: whether that was in respect of delivered bills (and if so, in respect of what work under the retainer) or was payment in advance and on account is not clear. It is not in dispute that these fees were taken from General's own funds (and not from Global's funds under its administration). General would under the Deed have had a right to seek reimbursement insofar as the advice related to partnership affairs: but that right had not been exercised by the time General was dismissed as managing general partner of Global.
  24. The initial proposal to deal with the difficulties was by way of a consensual separation between Global and the B&B Group. As part of his summary of the position for B&B Group senior management in March 2009 Mr Hanson acknowledged that there were outstanding management fees due to General of €6.9 million (and that a further €6 million would become payable whilst the separation took effect), but he noted that there were contingent liabilities that might result from claims which the limited partners "may" bring against General for gross negligence and failure of fiduciary duties on past issues or in respect of future failures of "the disintegrating manager". These contingent liabilities he suggested exceeded the management fee currently or prospectively due. The function of the presentation was to provide an Executive Summary of the position for senior management. Mr Hanson's apparent role was as rapporteur.
  25. The suggestion that there may be claims against General (as opposed to the B& B Group) can, on the material I have seen, be properly described as a negotiating ploy. No such claims had been intimated to the Board of General by anybody. In relation to key investment decisions Mr Mahoney and Mr Farjallah (and their predecessor) had acted on reports from Mr Hanson himself as the director responsible (together with the other members of the FMT) for the day to day management of the fund. Mr Hanson did not spell out the way in which he had procured or participated in the wilful misconduct, bad faith or reckless breach of fiduciary duty by General which alone could be the foundation of such a claim. Nor was there any indication that the claim amounted to such a breach of duty as would justify the removal of General as managing partner for cause and without compensation. Indeed, as late as October 2009 all that Slaughter and May could identify was that in the course of acquisitions being agreed "[General] appears to have delegated management duties to members of the B&B Group": and even by 18 November 2009 could not detail the misconduct claims. So there was no live formulated claim: merely a general indication that the limited partners may have such.
  26. Writing off accrued and accruing management charges was also the theme of an indicative separation proposal prepared by the FMT in June 2009. This argued for a separation of General from Global and the replacement of General by "the existing management team" i.e the FMT. It suggested that the limited partners may waive their right to legal claims against the B&B Group and General over investments like Coinmach, pointing out
  27. " A consent from limited partners to waive their rights to litigate will need a compelling reason or "sweetener" that the existing management has been able to present to LP's as some consider their rights to litigate their biggest unrealised value in [Global] (i.e Coinmach). In other words LPs must feel that they win something in return for giving up their litigation upside. The transfer of minority stakes at a significant disc and the cancellation of the outstanding management fees are available incentives".

    Mr Hanson therefore recommended to the B&B Group senior management using the unpaid fees as part of an overall negotiated settlement. At this time, again, no claims had in fact been made by anyone against General.

  28. The B&B Group was resistant to this proposal and the idea of a consensual separation foundered.
  29. On 11 September 2009 Slaughter on May wrote to some of the limited partners in Global (excluding all with a connection to the B&B Group) a letter which they described as "highly confidential and commercially sensitive". It conveyed the views of "the Steering Group" (holders of just under 60% of the commitments to the partnership): it invited the support of sufficient of the addressees to form the 75% requisite for passing of a resolution "to dismiss [Global's] general partner, which is a member of the B&B Group, and to appoint a replacement that is independent". The independent replacement general partner was intended to have no employees, but was intended to appoint a new company to be formed by the FMT acting as consultants. The terms of the consultancy were said to be designed to align the interests of the new managers with the interests of the limited partners. There was to be a payment of €400,000 on separation from the B&B Group; and further incentive payments based in part on the net disposal proceeds of Global's assets. But crucially the FMT were to be rewarded with a payment of
  30. " 10% of the management fees due to [General] prior to its retirement or dismissal which are settled by way of set-off against the sums due to [Global] and its limited partners for breach of contractual and/or fiduciary duties or other legal claims".

    In other words, the greater the sum which Mr Hanson (a director of General and its agent) managed to prevent General receiving in respect of the management fees admittedly due to it, the greater his personal reward. I confess to finding it surprising that Slaughter and May, who were apparently retained and paid by General, should in the course of that retainer be secretly soliciting support for the removal of their client as managing partner to its maximum financial disadvantage. Many solicitors would have sensed a degree of conflict. But as Mr Moger QC pointed out, they are not here to explain themselves.

  31. At this time General held some €11 million in cash. It was not obliged to distribute this because it had accrued management fees of some €7 million and (as Mr Hanson had acknowledged in his presentations) an accruing claim to some €6 million. This fund represented a substantial part of Global's assets. Sometime prior to July 2009 Mr Hanson, the FMT and the Advisory Board decided to procure that this fund should be removed from General's control. The only reason for doing that would be if that fund was to be used as a set-off against claims to be brought against General by the limited partners in Global (the arrangement later articulated in the letter of 11 September 2009). It may therefore be taken that a plan to dismiss General for wilful misconduct and reckless disregard of obligations predates 10 July 2009.
  32. Between 8 and 16 September 2009 Slaughter and May at the request of Mr Hanson formulated advice to be given to the board of General "in relation to matters where there is a potential conflict between the interests of [Global] and its limited partners on the one hand and members of the [B&B Group] on the other". So far as I can see the advice only ever reached draft form and was tendered to the board by means of an e-mail from Mr Hanson on 17 September 2009 attaching an unsigned draft. Slaughter and May informed the Board that they had advised the Advisory Board that there may be claims against General: and they advised the Board that if there was a conflict between the interests of General and the interests of the limited partners then the fiduciary duty of General "will favour the interests of [Global] and the limited partners over the interests of [General] itself" and that accordingly the board of General should transfer away the €11 million cash. Slaughter and May did not disclose to the board of General (what Mr Hanson knew but Mr Mahoney and Mr Farjallah did not) that preparations were being made to remove General as managing general partner for cause under clause 14.4.2 of the Deed.
  33. On 17 September 2009 Slaughter and May also prepared draft board minutes for an intended meeting the following day. These they sent to Mr Hanson (and the other members of the FMT) for consideration. This draft recorded (as was the case) that no fault by General had been alleged by anybody, but the draft asserted that General was liable for the failures of delegates within the B&B Group. A second version of the draft recorded (as was also the case) that it was not possible to make a definitive judgment on the merits of the claims.
  34. The signed of minutes of a meeting of the Board of General on 18 September 2009 record the following:-
  35. (a) Mr Hanson reported that he had been contacted by the Advisory Board of Global (and that General had received draft advice from Slaughter and May) in relation to certain complaints by some of the limited partners regarding "alleged breaches of contractual and/or fiduciary duties by [General] attributable to the conduct of members of the [B & B Group]" in connection with investments in Coinmach, eircom and Westnet Rail and arising from inadequate disclosure by B&B Group;
    (b) Mr Hanson reported that it was the view of the Advisory Board that the B&B Group would, if the claims were made good, owe sums to Global and its limited partners and that these sums would exceed the fees currently outstanding to General (and Slaughter and May advised that the effect of the allegations was to give rise to potential claims by Global against members of the B&B group who were acting as delegates of General);
    (c) Mr Hanson advised the meeting that the fear was that the B&B Group would procure the replacement of himself Mr Mahoney and Mr Farjallah with directors who would enforce General's claim to outstanding fees which (when paid) would be transferred out of General to the B&B Group and, by reason of its financial plight, become irrecoverable;
    (d) That accordingly the Advisory Board had requested that the cash balances be safeguarded by transferring them to the client account of Slaughter and May until such time as all relevant matters had been resolved;
    (e) That Slaughter and May's advice was that General owed a fiduciary duty to Global and its limited partners and that the transfer would be in compliance with that duty;
    (f) That the Board resolved that the transfer was "in the commercial interests of [General] acting both for its own account and as General partner of [Global]" and authorised it.
  36. The evidence of Mr Mahoney (which I accept) was that he sought some reassurance about the nature of the claims against General and was informed by Mr Cripps of Slaughter and May that they were only a consequence of the actions of the B&B Group and that was no actual wrongdoing by General itself. Advice in such terms did not alert Mr Mahoney or Mr Farjallah to the possibility that General itself might be accused of having been guilty of wilful misconduct or a reckless disregard of its fiduciary duties.
  37. What was not explained at the Board Meeting (by either Mr Hanson a director or by Slaughter & May who were the solicitors advising the Board) was that there were moves afoot orchestrated by them to remove General as managing partner of Global without compensation. Nor was it pointed out by Slaughter and May that the terms on which they intended to hold the money in their client account contemplated the removal of General as managing partner and had been deliberately framed to secure that General would be deprived of its right of veto over payments out of the escrow account in the event that it was so removed. Had Mr Mahoney and Mr Farjallah understood that to be the case I do not think that they could have resolved that the transfer was in the commercial interests of General acting for its own account. Mr Mahoney gives direct evidence (which I accept) that this was never his understanding of the terms, the purpose of the escrow as he understood it simply being to have the money held by a stakeholder pending the resolution of claims between the limited partners and the B&B Group. The escrow was simply a mechanism which prevented the cash fund being moved up the chain (to the shareholder in General and thence to the B&B Group): not a mechanism for removing it from General itself.
  38. Immediately after the Board Meeting General transferred the cash fund into the client account of Slaughter and May, who acknowledged such receipt subject to irrevocable instructions "that none of such sums are to be transferred out of our client account unless we have received a written instruction from the general partner of [Global] to make a transfer … accompanied by resolution of the Advisory Board of [Global] approving the making of the transfer…". The reference to "the general partner of [Global]" was the mechanism by which Slaughter and May intended that General should be deprived of its veto. (Whether the device works has yet to be settled: there is a dispute about the terms of the escrow).
  39. On 28 September 2009 Mr Hanson called a board meeting of General for unspecified business, and immediately thereafter a draft of an intended requisition by certain limited partners was sent by Slaughter and May to Mr Mahoney and Mr Farjallah.
  40. On 29 September 2009 a number of limited partners (acting by Slaughter and May as their individual attorneys) requisitioned a meeting (proposed to be held on 6 October 2009 at the offices of Slaughter and May) to consider a resolution that General be removed as general partner of Global pursuant to clause 14.4.2 of the Deed (i.e. on the ground fraud, gross negligence, wilful misconduct, bad faith or reckless disregard of obligation).
  41. This was sent by fax to General at its Cayman offices. It prompted a request from Mr Mahoney to Slaughter and May for advice in relation to the minutes (then in draft) of the meeting had taken place on 18 September 2009. Mr Mahoney noted that the transfer of funds appeared to have deprived General of the resources to investigate the basis of the claims now made against it or to investigate what action should be taken to enforce or preserve General's rights: and he also observed that the draft letter of advice recorded that Slaughter and May had given advice to the Advisory Board about those potential claims, and enquired whether this meant that Slaughter and May could not advise General on matters relating to the partnership.
  42. This led Slaughter and May to express the following views:-
  43. (a) That they were acting for Global but if there was a divergence interests then they were acting for the limited partners;
    (b) In answer to an enquiry about the nature of the alleged breaches which founded claims against General Mr Cripps of Slaughter and May advised that "due to confidentiality restrictions he was limited in the information which he could divulge without obtaining express instructions from his client";
    (c) The explanation Mr Cripps gave was that the claims against General stemmed from alleged breaches which were committed by principals of the B&B Group when acting as delegates or agents of General: but he did not explain how the delegation of authority by General to B&B Group was determined or how it provided the basis for a claim, saying that the point of removing General was to allow the limited partners to raise a claim "further up the chain" against the appropriate members of the B&B Group rather than General itself (though he could not rule out that possibility).
  44. The requisition was thereafter notified to the senior management of the B&B Group by Mr Hanson, who said that Slaughter and May represented "a number of limited partners". This immediately prompted a number of questions: Was the removal for cause? If so, what were the specific grounds? Did insurers need to be notified? What did the board of General know of the matter? Was a new general partner being proposed? Why was the meeting being convened so early in a 14 day permitted period? Who had called the meeting? Had General taken English legal advice? To these questions Mr Hanson gave replies which gave the impression that he was an observer of actions initiated by others. But further probing in a telephone conversation rang alarm bells. The B&B Group's Australian legal advisers summarised it in these terms:-
  45. "That was an extraordinary conversation last night! How Ed could possibly justify in his head having clearly detrimental conversations with S & M on the basis that he was talking to them in his capacity as limited partner rather than as [General's] representative - and that he can't tell us what was said because that was confidential to him and S & M - is just unfathomable. Ed is a seriously loose canon (sic) on greased wheels..."

    The terms of that response suggest that the B&B Group senior management did not know of and did not sanction Mr Hanson's acting contrary to the interests of General ( although they had sanctioned his acting in the interests of General were those interests conflicted with the B & B Group at large). This is explicitly confirmed in the evidence of Mr Loewensohn, Ms Cole, Mr Lewis, Mr Rey and Mr Larkin. I accept that evidence.

  46. It is also apparent from the correspondence that Mr Hanson was at this stage presenting himself as a neutral go-between. Thus on 30 September he e-mailed Slaughter and May (with copies to Mr Mahoney and Mr Farjallah) saying that what the directors of General (of whom he was one) would like to understand was what the claims against General were which founded its removal for cause under clause 14.4.2: to which Slaughter and May responded on 5 October 2009 that they were not obliged nor instructed to give details. Their instructions had, of course, come from Mr Hanson as director and agent of General.
  47. On 5 October 2009 Bird & Bird were retained to provide separate advice to General because Mr Mahoney and Mr Farjallah no longer felt they could rely on Slaughter and May.
  48. The meeting set for 6 October did not in fact take place; it was adjourned until 21 October. At that meeting a resolution in more neutral terms was put and passed, to the effect that General should cease to act as managing general partner of Global in accordance with clause 14 of the Deed with both General and the limited partners reserving in their rights with regard to outstanding fees and compensation for termination. Mr Cripps of Slaughter and May informed the meeting that anew managing general partner was in the process of formation and that it would retain the FMT.
  49. As I turn to the application of legal principle to these facts I would indicate that I intend to draw a distinction between two categories of material. The first relates to what I will call "the External Claims". These are claims pursued by General on behalf of Global against B&B Group arising out of contentious investments (in particular in Coinmach, eircom and Westnet Rail). In relation to the External Claims it is common ground that Mr Hanson disclosed to the relevant organs of the B&B Group that, whenever a conflict arose between his duties as an employee of or officeholder within the B&B Group and his duties as seconded executive director of General to assist General in the discharge of its duties as managing partner to Global, he intended to give priority to Global's interests. It is equally plain from Slaughter and May's client care letter that it was in the context of the External Claims and with the object of securing satisfaction of the External Claims that General retained them. The second category (which I will treat as the residual category) I will call "the Internal Claims" meaning claims within Global relating to obligations arising out of the Deed. I draw the distinction because they are conceptually different, even if on occasion they are factually intertwined (e.g. when Mr Hanson and the FMT used the alleged existence of an Internal Claim as a negotiating tool to secure advantageous settlement of an External Claim).
  50. Mr Moger QC submitted (and I agree) that a key finding would be the identity of Slaughter and May's client. I find and hold that Slaughter and May's client was Global acting by its agent General. (Again, I use the term "Global" as convenient shorthand for each of the partners (general and limited) in the firm). This is clear from Mr Hanson's explanation to the independent directors of General as to the taking of advice, from the "know your client" process, from the terms of the "client care" letter, from the context of the instruction and from the objective of the retainer. This is the only retainer with which I am concerned (the suggestion that there may have been a separate retainer by other clients being abandoned).
  51. Mr Millett QC argued that General was the sole client, drawing my attention to the acceptance by the Court of Appeal in Three Rivers DC v Bank of England (No.5) [2003] QB 1556 that the Bingham Inquiry Unit rather than the Bank of England itself was the client of the solicitors. A consideration of that case did not cause me to alter my analysis of the facts in this case. General was undoubtedly the party with whom the contract of retainer was entered because it alone had authority within Global to enter into relations with third parties. But that does not mean that it alone was the client. It entered into the contract as agent for and on behalf of Global, not in its own right in its own interest.
  52. Mr Moger QC argued that whilst that conclusion might be reached by impeccable legal reasoning at a commercial level it obscured the reality. In truth he said it was the B&B Group (of which General formed part) on the one hand and the limited partners on the other: and the only way the limited partners could get legal advice (if they were not to lose their limited status) was by using General. So Slaughter and May's clients were the limited partners: any other analysis made General a permanent spy in the limited partners' camp.
  53. I do not agree. The Advisory Board or the Steering Committee or any individual limited partner could in his or their own right have sought legal advice (and could have conferred with all some of the other limited partners) as to the protection of a partnership share or in connection with an examination into the prospects of the partnership business without prejudicing their status. Such is permitted by the proviso to s.6 of the 1907 Act. The costs of doing so would not, of course, be a partnership expense. Instead, Mr Hanson, using the executive power he held as a director of General, gave instructions on behalf of General for advice to be given to Global: and so far as the material discloses this was concurred in by those partners who knew of it and to whom the advice was communicated. In my judgement this was the only retainer that ever existed: and if Mr Hanson or Slaughter and May said that they were acting for some other client or clients then they were mistaken.
  54. I can now turn to the arguments addressed to me. Mr Crow QC's most radical submission was that there could be no restriction upon any B&B Group member inspecting and using anything on the B&B Group database because nothing put on the database could be confidential: there was no confidentiality in the relevant documents (so no question of privilege could arise).
  55. The employment contracts of Mr Hanson and the other members of the FMT contained a provision requiring them to familiarise themselves with and comply with all employment policies. One such policy was "The Babcock & Brown Information Security Policy". In 2008 and 2009 each member of the FMT acknowledged awareness of this. It included the following provision:-
  56. "[Babcock & Brown Ltd and its related entities] may monitor or examine any Employee's usage of Babcock & Brown's information assets at any time…. Bangkok & Brown Employee's should have no expectation of privacy in using any of Babcock & Brown information is, subject to applicable laws and regulations. All users of Babcock & Brown information assets knowingly consent to their usage being monitored and examined and acknowledge Babcock & Brown's right to conduct such monitoring…"

    In choosing to communicate with Slaughter and May through their B&B Group e-mail accounts it is said that Mr Hanson and the FMT accepted that the communications were not confidential as against the B&B Group. if a communication is not in its nature private and confidential then there can be no privilege: Greenough v Gaskell (1833) 1 My & K 98 at 104.

  57. Mr Moger QCs answer is that this starts the analysis at the wrong point. Mr Hanson was not Slaughter and May's client. Slaughter and May's client (on my findings) was Global. Legal advice tendered by Slaughter and May to General on behalf of Global is prima facie confidential and privileged. The true question is whether confidentiality and privilege is lost by sending advice to Global by e-mail to Mr Hanson (with the result that it is stored on the B&B Group database). In that connection the B & B Group had another policy called "The Babcock & Brown Managing Confidential Information Policy". This proceeded on the footing at the B&B Group regularly obtained confidential information concerning counterparties and others with whom it dealt. The policy stated
  58. " Business Associate and Counterparty confidential information should only be used for the purpose for which it was given and should not be used for the benefit of another Business Associate or Counterparty or Babcock & Brown itself if it was not intended to do so (or unless expressly authorised)"

    Mr Crow QC's response to this is that the argument assumes that which it seeks to prove namely that the legal advice was confidential.

  59. In my judgment the approach of Mr Moger QC is correct. The starting point is the nature of the matter communicated not the manner of the communication. Legal professional privilege is a substantive right founded on an important public policy, namely that a client should be able to communicate freely with his legal adviser without fear that what passes between them will be used against him. Documents generated in the course of a solicitor/client relationship are presumed confidential. The confidentiality that prima facie attaches to legal advice is the correct starting point. Slaughter and May were advising Global by tendering advice to the firm's managing partner, General. When they did so Slaughter and May marked the communications "confidential": nothing in the open material suggests that they at this time knew B&B Group had any rights to inspect e-mails sent to Mr Hanson. The right to assert that confidence and to claim privilege for that advice was a power vested in General for the benefit of all the partners in Global. The confidentiality was not lost simply because Mr Hanson (rather than Mr Mahoney) received the communication. The fact that Mr Hanson personally might not be able to assert a right to privacy against his employer does not mean that General cannot assert (or be obliged in the discharge of its fiduciary duties to the members of Global to assert) the right to confidentiality in respect of the material communicated, or prevent the B&B Group from using confidential information belonging to business associates or counterparties (such as General and the limited partners in Global) for its own purposes.
  60. In respect of advice to General on behalf of Global from Slaughter and May about the External Claims I would go further. Having sanctioned their employee Mr Hanson (as the seconded executive director of Global) to pursue claims on behalf of Global against the B&B Group the B&B Group cannot be heard to say that they regard themselves as free to read all the advice from Slaughter and May that Mr Hanson received about the External Claims and to use that for their own purposes. I regard it as implicit in granting that sanction that B&B Group recognized that Mr Hanson would have communications that they simply could not inspect (even if it was, as contemplated in the administrative arrangements with General, held on the group database).
  61. I accordingly find and hold that communications passing between Mr Hanson and the FMT on the one hand and Slaughter and May on the other remain confidential and capable of being the subject of a claim to legal professional privilege notwithstanding that digital copies are to be found on the B&B Group database.
  62. Mr Crow QC and Mister Millett QC next argued that if advice from Slaughter and May was confidential and possibly privileged yet that privilege could not be asserted against some of the Claimants. In this I think they are plainly right. The advice of Slaughter and May was sought by General (not in its sectional interest as against its other partners but as managing general partner of Global). General principally acted through its director and delegated agent Mr Hanson: and it was in that character that he provided information and sought and received advice. If Slaughter and May were advising Global through the agency of General then their advice must be made available to General and to the Second and Third Claimants. When Mr Cripps of Slaughter and May told Mr Mahoney and Mr Farjallah that considerations of confidentiality prevented him from disclosing all the advice he had given, he was in error. He was acting for Global (that is, for the collection of natural and legal persons who made up the firm) and every partner in Global, whether general or limited, was entitled to see and use all the advice he was giving, for each of them was his client.
  63. I heard no real argument to the contrary (though it was suggested on decision might stand in the way). I consider that the authorities establish that where a solicitor accepts a joint retainer from parties with potentially conflicting interests one client cannot insist as against the other that legal professional privilege attaches to any of what passes between the solicitor and that client during the currency and in the course of the retainer: Baugh v Cradocke (1832) 1 Mood & R 182; Perry v Smith (1842) M&W 681; Shore v Bedford (1843) 5 Man & Gex 271; Ross v Gibbs (1869) LR 8 Eq 522 and Re Koenigsberg [1989] 3 All ER 289. (I note that there is no question here of a separate and exclusive retainer of Slaughter and May by some only of the joint clients). I agree with this statement of the law in Thanki "The Law of Privilege" para 6.12:-
  64. "….in order for joint privilege to arise the joint interest must exist at the time that the communication comes into existence. If the parties subsequently fall out and sue one another, neither of them can claim privilege as against the other in respect of any documents that are caught by the joint privilege, as the original joint interest is not destroyed by a subsequent disagreement between the parties…"

    I consider that the authorities also establish that privilege cannot be asserted as between partners in relation to any documents concerning the partnership's affairs: Re Pickering (1883) 25 ChD 247. Slaughter and May's advice was undoubtedly sought and tendered in relation to the partnership's affairs and forms part of the books and records of the partnership.

  65. Mr Moger QC submits that the decision in North and South Trust v Berkeley [1971] 1 WLR 470 stands in the way of this approach. Lambert's acting for North arranged that North's goods should be insured with Lloyd's underwriters. There was a claim. Berkeley ( a member of the underwriting syndicate) instructed Lamberts to obtain an assessor's report. Lamberts did not show the report to North. The underwriters denied liability. North brought an action to see the report. The action failed. Donaldson J held that in acting for Berkeley Lamberts were undertaking duties which inhibited the proper performance of their duties towards North. Lamberts wore both North's hat and Berkeley's hat side-by-side and in consequence neither fitted properly. North could claim damages: "but what [North] ask in these proceedings is to be allowed to see what Lamberts were keeping under [Berkeley's] hat and for that there is no warrant".
  66. I do not think this case assists me. Mr Hanson is not like Lamberts. He did not (whilst a director of General) as agent of a third party instruct Slaughter and May to act on behalf of that third party (whose interests conflicted with those of General). What he did was (as the human agent of General) to procure that General (as the authorised agent of Global) should instruct Slaughter and May to act for Global. There is no question of any separate (and conflicting) agency. The question is: once Slaughter and May are instructed to act for Global (the firm), who amongst their clients may see the advice? That question I have answered.
  67. I hold that this principle of access to material arising in the course of the joint retainer ceases to apply on 5 October 2009 when Slaughter and May declined to provide advice to the Board of General about the grounds for the requisition and when General instructed separate solicitors. Until that time Slaughter and May were still asserting a retainer by Global, were being asked for advice by General and were still giving advice to General. For whom Slaughter and May were thenceforward acting was not the subject of examination at trial. Slaughter and May seem to have regarded themselves as acting for the limited partners (in which case no legal professional privilege could be asserted against the Second and Third Claimants in respect of post 5 October 2009 material). No partner in Global put forward any positive case. So I will have to leave that question open for further argument if it becomes relevant.
  68. But what is the consequence of holding that General (as managing general partner) and the Second and Third Claimants (as limited partners) may freely examine all communications passing between Slaughter and May and those providing instructions and information to the solicitors during the currency of the Global retainer up until 5 October 2009? It does not mean that General and the Second and Third Claimants are free to disseminate and permit use of the information so acquired in any claim against Global.
  69. I hold that although no limited partner can claim legal professional privilege as a ground for withholding material from General or the Second and Third Claimants, yet each may assert confidence and claim privilege against anyone else (save only the direct shareholder in General).
  70. The right to confidentiality and privilege is a joint right of all the individual clients of Slaughter and May. No one partner can waive it: Phipson on Evidence 17th ed. para 24-01. This general principle is reinforced in the case of the Second and Third Claimants by the specific obligation they entered into in the Deed not to disclose to anyone or use to the detriment of any of the other partners (other than in connection with claims by the Second and Third Claimants against such partners) any confidential information concerning the affairs of the partnership. The one exception to the principle is that General may disclose the material to its direct shareholder. That is because the shareholder is entitled to see all documents obtained by a company in the course of the administration of its affairs (including legal advice obtained by the company on behalf of all shareholders, though not legal advice obtained by a company in response to an actual or contemplated claim by the shareholder against the company) in which it has a common interest: see Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559, Re Hydrosan Ltd [1991] BCLC 418, CAS Nominees Ltd v Nottingham Forest FC plc [2002] BCLC 613 and Arrow Trading v Edwardian Group [2005] 1BCLC 696.
  71. There are two other issues which arise in this case on which no relevant authority was drawn to my attention:-
  72. (a) Can the direct shareholder in turn share the material with its shareholders upon the same principle? I answer that question in the negative, on grounds of policy rather than principle. Bringing within the ring of privilege the shareholder of the company which was the actual client of the solicitor on the ground of common interest is well settled rule. But I see no reason to extend the entrenchment upon the basic rule of privilege all the way up the chain of holding companies notwithstanding the steady dilution of that common interest.
    (b) Can the direct shareholder see material which may relate to the External Claims? I answer that question in the negative. In my judgment the principle which enables the company to keep from the shareholder (on the ground of lack of common interest) legal advice taken by the company in connection with actual or contemplated proceedings between the company and that shareholder applies whatever the nature of the dispute. The dispute does not have to be between the company and the shareholder in relation to the company's internal affairs (though that is the usual context in which it comes before the Court). If the company is in dispute with the shareholder about some service provided at arm's length by the shareholder to the company there is equally no common interest in the advice obtained. Since it does not appear clear from the evidence that General's direct shareholder is a company against whom no claim could be brought by Global (as part of its claims against the B&B Group) I hold that it is not entitled to see any communications passing between Slaughter and May and Global relating to the External Claims.
  73. To summarise the position at this stage:
  74. (a) General is entitled to see anything generated in the course of Global's retainer of Slaughter and May from the actual commencement of dealing up to the 5 October 2009, and it may bring its direct shareholder within the ring of privilege; but it may not divulge that material to any member of the B&B Group (other than the Second and Third Claimants). It may however itself use that material in the prosecution of any claim against any partner in Global.
    (b) The Second and Third Claimants are entitled to see anything generated in the course of Global's retainer of Slaughter and May up to 5 October 2009 (and possibly beyond, depending upon who were Slaughter and May's clients after that date); but they may not divulge that material to any member of the B&B Group (other than General). They made themselves use that material in the prosecution of any claim against any partner in Global.
    (c) The Fourth Claimant is not entitled to see anything unless it is the direct shareholder of General (in which case it may see anything that is available to General except material relating to the External Claims, but it cannot make available what it sees to any other member of the B & B Group because it is still subject to legal professional privilege);
    (d) The Fifth Claimant (as the employer of Mr Drastik and Mr Stahel) may inspect their e-mail accounts and any information assets created by then on the B & B Group the database, but is not entitled to use for its own purposes any information found that there which is confidential to Global (in particular instructions and information given to and advice received from Slaughter and May in the course of Global's retainer).
  75. Having summarised the position arising on the first two lines of argument, I can turn to the third line of argument. This is that the partners in Global cannot claim that any material seen by General is subject to claims to legal professional privilege by them (so that General is not free to use and to disseminate such material as it wishes) because of "the iniquity principle". This principle may be shortly stated: advice sought or given for the purpose of effecting iniquity is not privileged (see Barclays Bank v Eustice [1995] 1 WLR 1238 at 1249 per Schiemann LJ). The principle is founded upon public policy: "we are here engaged … in deciding whether public policy requires that the documents in question are left uninspected" (ibid at p. 1250H). The rationale was said by Parker LJ in Banque Kayser v Skandia [1986] 1 Ll. Rep 336 at 338 to be:
  76. "….first, that a fraudulent party who communicates with his solicitor for the purposes of the furtherance of fraud or crime is both communicating with his solicitor otherwise than in the ordinary course of professional communications, and secondly that in any event it would be monstrous for the Court to afford protection from production in respect of communications which are made for the purpose of fraud or crime"

    The difference in language flags up the first of the points argued.

  77. Mister Moger QC argued that the principle was not engaged at all because whatever wrongdoing occurred it lacked sufficient seriousness to constitute "iniquity". Although the case law refers to crime or fraud or dishonesty (such as fraudulent breach of trust, fraudulent conspiracy, trickery or sham contrivances) it is plain that the term "fraud" is used in a relatively wide sense: Eustice (op.cit) at 1249D. So a scheme to effect transactions at an under value was sufficient (Eustice); as was deliberate misrepresentation for the purpose of securing a mortgage advance ... Nationwide Building Society v Various Solicitors [1999] PNLR 52 at 72; or making a disposition with the intention of defeating a spouse's claim for financial relief (C v C [2008] 1 FLR 115); or the establishment by employees, in breach of a duty of fidelity to their employer, of a rival business ( Gamlen v Rochem [1983] RPC 1 and Walsh Automation v Bridgeman [2002] EWHC 1344 (QB)). The enumeration of examples is useful only insofar as it enables some underlying theme or connectedness to be identified. In each of these cases the wrongdoer has gone beyond conduct which merely amounts to a civil wrong; he has indulged in sharp practice, something of an underhand nature where the circumstances required good faith, something which commercial men would say was a fraud or which the law treats as entirely contrary to public policy. (I borrow language from Gamlen (supra) and from Williams v Quebrada Railway [1895] 2 Ch 751).
  78. The wrongdoer here is Mr Hanson (and also to some extent the other members of the FMT). What is said is that they acted in breach of their duty of fidelity to General (a rising from Mr Hanson's being a director and all of the FMT being agents). The breaches were:-
  79. (a) that they failed to disclose to the board of General a plan to remove General "for cause" (and so to deprive it of compensation on termination of its role as managing partner) and they themselves assisted in the formulation and implementation of that plan;
    (b) that they failed to disclose to the board of General a plan to put entirely beyond the control of General a cash fund over which general had rights as partner (and themselves assisted in the formulation and implementation of the plan);
    (c) that they helped to plan and prepare a case about the Internal Claims against General without disclosing to the Board that they were doing so;
    (d) that they failed to disclose to the board of General a proposal that they should as consultants take over the role of General once it was removed as managing partner on terms which rewarded them the more highly the more badly General came out of any resolution of the claims against it.
    (e) That they generally preferred the interests of the limited partners over the interests of General and did so under a cloak of secrecy.
  80. In my judgment conduct of that character is sufficient to engage the iniquity principle.
  81. Mr Moger QC submitted that although it may be possible to analyse the conduct in those terms, in truth this was simply a case of misguided zeal by Mister Hanson without any real desire to secure a personal advantage. I do not agree that that is an appropriate reading of the facts. But even if it were I do not consider that it makes a difference. Neither at common law nor in equity is personal advantage a necessary element of "fraud".
  82. Then Mr Moger QC submits that the privilege is that of the partners in Global; whereas the wrongdoing described as "iniquitous" is that of Mr Hanson and the other members of the FMT. He says that as a matter of principle it must be wrong to deprive the limited partners of their privilege because of the wrongdoing of somebody else. Now I can see that that point may have some force in relation to those limited partners who (although clients of Slaughter and May) were not told what advice was being taken or given or what the plan was. But as I understand the evidence, those from whom these matters were concealed were limited partners with connections to the B&B Group and its senior management (i.e. those least likely to insist on the privilege being claimed anyway). But for the rest of the limited partners the point seems to me to have no weight. The open material demonstrates that Mr Hanson and the FMT were not on some independent frolic of their own. They were in communication with the Advisory Board and the Steering Committee, and all but the excluded limited partners were made aware of the proposals on 11 September 2009. Mr Hanson was simply their agent.
  83. But even if this were not so, the innocent client may lose the privilege to which he would otherwise be entitled even if it is a third-party who has the iniquitous intention. In R v Central Criminal Court ex parte Francis & Francis [1989] AC 346 Lord Goff said (at 396D-G):-
  84. "..when I have regard both to the purpose which has long been understood to underlie the principle of legal professional privilege, and to the reason why communications passing between a client with a criminal purpose and a solicitor who is innocent of any such purpose are held not to be protected by such privilege, it appears to me to be immaterial to that exception whether it is the client himself, or third-party who is using the client as his innocent tool, who has the criminal intention…unless there is some authority, or compelling reason, leading to an opposite conclusion, I would hold that the criminal intention of the third-party will…. exclude the application of the principle of legal professional privilege at common law, even though the privilege, if attached, would be the privilege of the client and not of the third-party."

    So I reject that submission.

  85. If the principle may be engaged then the question arises whether it may properly be applied. It is common ground that for the principle to apply the evidence must disclose a strong prima facie case of iniquity. I was referred to the classic discussion in O'Rourke v Darbishire [1920] AC 581 at 604. Mr Moger QC submits that it is inappropriate to apply that test in a Part 8 where there has been no disclosure and no cross-examination. I reject that submission. These features result from tactical decisions taken by Global and its advisers. Moreover the court will generally be applying this test in an interlocutory context with full recognition that at a hearing with cross-examination the provisional conclusion may have to be revised: Dadourian Group v Simms [2008] EWHC1784 Ch at paragraph 143.
  86. An issue then rose as to the material which I could take into account in applying the test. Mr Crow QC and Mr Millett QC each submitted that I was entitled to look at the closed material in order to decide whether a strong prima facie case of iniquity had been established. In R v Cox and Railton (1884) 14 QBD 153 the court after being pressed with the argument that the privilege would have to be violated in order to see whether it was legitimate to violate it, said:-
  87. "…the only thing we feel authorised to say upon this matter is, that in each particular case the court must determine upon the facts actually given in evidence or proposed to be given in evidence, whether it seems probable that the accused person may have consulted his legal adviser, not after the commission of the crime from the legitimate purpose of being defended, but before the commission of the crime for the purpose of being guided or helped in committing it" (The reference to "probability" may be ignored).

    The reference to evidence "proposed to be given" has generally been taken to mean "the apparently privileged material". That is the way the matter was treated in R v Governor of Pentonville Prison ex parte Osman (1990) 90 Cr App R 281 at 311 and in R v Gibbins [2004] EWCA Crim 311 where Potter LJ observed at paragraph [42]:-

    "….it seems clear that, in deciding whether a prima facie case of fraud has been established in relation to the document concerned, the court is not limited to considering the position dehors the document or documents of which disclosure is sought….thus while the questions which the court must ask itself are conveniently split into two…… for the purpose of determining the answers, the court may look at the position in the round including the contents of the document(s) of which disclosure is sought."

    In neither Osman nor Gibbins was the summary of the law in those terms critical to the outcome of the case.

  88. But what is not clear from these general statements is whether the closed material is to be taken into account simply as a matter of routine; or whether it is only to be taken into account in some particular circumstances, and if so what those circumstances are. Mr Crow QC submitted that because the strength of the evidence required to establish a prima facie case may vary with the circumstances and nature of the proceedings (see Derby v Weldon (No 7) [1990] 3 All ER 161 at 177C-D) one should try to decide the case on the open material, but if the open material fell just short of establishing a strong prima facie case then one should look at the closed material.
  89. This has not been the approach adopted at first instance. In the slightly different context of looking at documents to see whether legal advice privilege had been correctly claimed Simon J regarded looking at the documents "as a solution of last resort" and that the judge is seeing material which is not available to one side should be "a rare and exceptional course" (National Westminster Bank plc v Rabobank [2006] EW 2332 at paragraphs [55] and [58]). In the context of a claim to restrain the use of privileged material in USP Strategies v London General Holdings Ltd [2004] EWHC 373 (Ch) Mann J held at para [34(b)] that
  90. "…even in the case were the sole evidence of wrongdoing is in a privileged communication, that does not justify the court in exercising its discretion against the invocation of the privilege. By and large a party can only prove what he or she can prove without the aid of the other side's privileged material". (Emphasis supplied)

    At paragraph [35] he went on to hold that there were no factors "of any real weight" which would lead him to take anything other than the ordinary course of excluding the material. In the present context in C v C [2006] EWHC 336 (Fam) Munby J held at para [67]:-

    "I think that the power the court undoubtedly has to examine the documents should be exercised very sparingly. … Privilege is, in principle, absolute. … Too ready a judicial willingness to exercise the power to inspect would put at risk the vitally important public policy on which the very principle of privilege is founded. Moreover, too ready a judicial willingness to exercise the power to inspect would tend to water down the salutary protections against the too ready ousting of privilege which are afforded by the stringent requirements set out in [the authorities]. Those who cannot meet the demanding test should not be allowed to go on a fishing expedition…"

    The applicant failed to make out a strong prima facie case on fraud on the open material. The judge held that having failed to gain entry through the front door, she should not be permitted to seek her objective by inviting the judge as her surrogate to make a surreptitious entry through the side door.

  91. It is right that in neither of these last two cases do the general observations in Osman and Gibbins appear to have been drawn to the attention of the court. But that does not matter because both judges acknowledged that the possibility of inspection existed, and the only question was how readily the power should be exercised (on which Osman and Gibbins say nothing). I intend to align myself with the views expressed by Simon, Mann and Munby JJ. As a rule the court should not look at the closed material. There must be some exceptional factor of real weight ( the nature of which has yet to be ascertained) before the court can examine the closed material to see if the test for disclosing the closed material is itself satisfied. The mere fact that the test is not satisfied on the open material is not such an exceptional factor of real weight. No exceptional factor was identified in argument. I therefore confine my attention to the open material.
  92. As indicated, I was able to manage the hearing to facilitate such a consideration. Having reminded myself of the Claimants' need to establish a strong prima facie case, that such a test is not a mechanistic one but falls to be applied upon the facts of this case, and that the outcome is determined by the facts of this case ( and not by conclusions drawn from other facts in other cases) I have asked myself whether there is sufficient evidence in the open material to establish a strong prima facie case that the partners in Global acting through Mr Hanson, the other members of the FMT, the Advisory Board and/or the Steering Committee consulted Slaughter and May before 18 September 2009 for the purpose of being guided or helped to secure that General should lose all power over the cash fund and could thereafter be removed without compensation as managing partner, by means which involved Mr Hansen and the FMT acting in breach of their fiduciary duties to General in the manner indicated above. I am so satisfied. I think the open material speaks for itself.
  93. I accordingly hold that Global cannot claim legal professional privilege in respect of any material passing to and from Slaughter and May from the date when they began to act down to 5 October 2009. I set that as the final date because by that date the scheme had been effectively implemented, General was alert to the fact that its interests did not seem to have been served by its executive director and the legal and advisers whom he had retained, and there is a real risk that advice was being given by Slaughter and May to Mr Hanson and the Global partners in connection with the wrongs which they had by being committed (and it is important that legal professional privilege should be infringed only to the smallest extent necessary). The material in respect of which privilege does not apply maybe freely used by General.
  94. There are three ancillary matters. First, my ruling does not apply to material produced in connection with the External Claims alone. The iniquity principle does not apply to any of this material: so far as the material relates only to claims against the B & B Group Global is entitled to claim privilege, and the principles that apply are contained in my summary of the position as at the conclusion of argument on the first and second principal points. Second, for concision I have expressed my ruling in relation to material passing "to and from Slaughter and May" in relation to the Internal Claims: I am not thereby making any restrictive ruling about material passing between some one or more of Mr Hanson, the other members of the FMT, the Advisory Board, the Steering Committee and individual partners in Global. There may be such on B&B Group database. The principles set out in Three Rivers DC v Bank of England (No 5) [2003] QB 1556 and the other familiar cases in the area will have to be applied to it. Third, although I have drawn the line at the 5 October 2009 the Second and Third Claimants may (as indicated above) have rights to inspect material after that date as limited partners ( but subject to the restrictions which would attach to limited partners).
  95. I am handing down this judgment in the vacation. I do not expect attendance of legal representatives on the formal handing down. I will deliver a separate judgment in private on the closed material. I express my thanks for the quality of the argument.
  96. At the hearing (and in view of current litigation in the Commercial Court and in the Australian courts) I said that I would grant permission both to the Claimants and to the Defendants to appeal (in order that an expedited appeal could be sought from this expedited hearing) because the key points raised were of real difficulty and not covered by any authority binding on me. I now think that course unwise. I am in principle prepared to grant permission but consider that (for the assistance of the Court of Appeal) the actual permission should be granted by reference to draft grounds of appeal. Arrangements can be made for a hearing in September to consider that matter if required: and for that purpose I will treat an application for permission as having been made and adjourned (so that time will not run). I would not in any event have granted a stay: if the statements of case or witness statements contain material which is subsequently ruled to be privileged the appropriate application can be made to excise them.
  97. I will also reserve the question of costs (and the disposal of the other costs questions reserved to the trial judge) to a further hearing to be fixed through the usual channels.


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URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/2176.html