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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Hotel Portfolio II UK Ltd v SMA Investment Holdings Ltd & Ors  EWHC 1754 (Comm) (05 July 2019)
Cite as:  EWHC 1754 (Comm)
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BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Fetter Lane, London, EC4A 1NL
B e f o r e :
| HOTEL PORTFOLIO II UK LIMITED (in liquidation)
|- and –
|SMA INVESTMENT HOLDINGS LIMITED (A company incorporated in the Marshall Islands)
DR GAIL ALISON COCHRANE
THE VISCOUNT OF JERSEY (As administrator of the desastre of Dr Gail Alison Cochrane)
THE VISCOUNT OF JERSEY (As administrator of the desastre of Orb Arl)
Hearing dates: 2 May 2019
Crown Copyright ©
Mrs Justice Moulder :
The LPP Application
i) all of the documents which are the subject of the LPP Application were created in the period 1 November 2013 to 14 January 2014, at which time their only clients were Orb a.r.l.("Orb"), Mr Roger Taylor and Mr Nick Thomas. Thus the clients on whose behalf the documents were produced were those three persons;
ii) Pursuant to the terms of their engagement, the clients appointed Pro Vinci Ltd ("Pro Vinci") to instruct Stewarts on their behalf. As a result Stewarts corresponded with employees or consultants of Pro Vinci including, Dawna Stickler, Sinead Irving and Gerald Smith;
iii) Dr Cochrane, the wife of Gerald Smith, gave Stewarts instructions on "significant matters" on behalf of Orb.
i) the Ruhan Proceedings in which HPII and its liquidator are the Claimants and seek relief against Mr Ruhan and Mr Stevens. If successful, it is said that these proceedings will result in HPII obtaining both personal and proprietary claims against Mr Ruhan and Mr Stevens in relation to the profits made by Mr Ruhan which are said to have been made at the expense of HPII and its creditors.
ii) the present Serious Fraud Office Proceedings in which HPII seeks to challenge both the IOM Settlement and the Geneva Settlement.
Applicable legal principles
"Legal professional privilege does not exist in respect of documents which are in themselves part of a criminal or fraudulent proceeding or, if it be different, communications made in order to get advice for the purpose of carrying out fraud, and that this is so whether or not the solicitor was or was not ignorant of the fact that he was being used for that purpose."
"Where is the line to be drawn between 'the ordinary run of cases' in which privilege attaches to communications with a solicitor by a client with a view to advancing a knowingly false case, and the conduct in Kuwait Airways (No.6)? The answer lies, in my view, in a focus on three aspects of legal professional privilege and the iniquity exception. The first is that legal professional privilege attaches to communications between solicitor and client which are confidential. The quality of confidence is a prerequisite to the privilege, because it is the protection of such confidence which forms the bedrock of the rationale for the privilege as essential to the administration of justice. Secondly, communications made in furtherance of an iniquitous purpose negate the necessary condition of confidentiality. It is this which prevents legal professional privilege attaching to communications for such purpose. Thirdly, the reason that communications in furtherance of iniquity lack the necessary quality of confidentiality is that communications can only attract the confidence if they are made in the ordinary course of professional engagement of a solicitor. It is the absence or abuse of the normal relationship which arises where a solicitor is rendering a service falling within the ordinary course of professional engagement which negates the necessary confidentiality and therefore the privilege. The 'ordinary run of cases' involve no such abuse: a solicitor instructed to defend his client of a criminal charge performs his proper professional role in advancing what the client knows to be an untrue case.'' [emphasis added]
''I would conclude, therefore, that the touchstone is whether the communication is made for the purposes of giving or receiving legal advice, or for the purposes of the conduct of actual or contemplated litigation, which is advice or conduct in which the solicitor is acting in the ordinary course of the professional engagement of a solicitor. If the iniquity puts the advice or conduct outside the normal scope of such professional engagement, or renders it an abuse of the relationship which properly falls within the ordinary course of such an engagement, a communication for such purpose cannot attract legal professional privilege. In cases where a lawyer is engaged to put forward a false case supported by false evidence, it will be a question of fact and degree whether it involves an abuse of the ordinary professional engagement of a solicitor in the circumstances in question. In the 'ordinary run' of criminal cases the solicitor will be acting in the ordinary course of professional engagement, and the client doing no more than using him to provide the services inherent in the proper fulfilment of such engagement, even where in denying the crime the defendant puts forward what the jury finds to be a bogus defence. But where in civil proceedings there is deception of the solicitors in order to use them as an instrument to perpetrate a substantial fraud on the other party and the court, that may well be indicative of a lack of confidentiality which is the essential prerequisite for the attachment of legal professional privilege. The deception of the solicitors, and therefore the abuse of the normal solicitor/client relationship, will often be the hallmark of iniquity which negates the privilege." [emphasis added]
"For the purposes of the rule, fraud includes ''all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances'', but not mere inducement to breach of contract. Nor does it include entering into an improper contingency fee agreement, or interference with goods. On the other hand it includes deliberate misrepresentation for the purposes of obtaining a mortgage loan, and fraud on creditors within s.423 of the Insolvency Act 1986 and this is so even if all parties wrongly believe the actions concerned to fall outside the scope of the section."
"I agree that fraud in this connection is not limited to the tort of deceit and includes all forms of fraud and dishonesty such as fraudulent breach of trust, fraudulent conspiracy, trickery and sham contrivances, but I cannot feel that the tort of inducing a breach of contract or the narrow form of conspiracy pleaded in this case come within that ambit."
"There must be a definite charge of fraud or illegality, supported by prima facie evidence, and not a mere allegation. There must also be a prima facie case that the document came into existence as part of the fraud. Indeed, it may be that there needs to be a ''strong prima facie case''. In Australia the evidence to show fraud must be admissible evidence. The court will be astute to prevent such allegations being made in order to enable discovery ''fishing'' applications to be mounted and ''very slow'' to deprive a defendant of legal privilege on an interlocutory application. It is not however necessary that the word ''fraud'' be used, if the facts alleged enable the court to recognise it." [emphasis added]
"…[N]o privilege comes into existence with regard to communications made in order to get advice for the purpose of carrying out a fraud.
"This is clear law, and, if such guilty purpose was in the client's mind when he sought the solicitor's advice, professional privilege is out of the question. But it is not enough to allege fraud. If the communications to the solicitor were for the purpose of obtaining professional advice, there must be, in order to get rid of privilege, not merely an allegation that they were made for the purpose of getting advice for the commission of a fraud, but there must be something to give colour to the charge. The statement must be made in clear and definite terms, and there must further be some prima facie evidence that it has some foundation in fact. It is with reference to cases of this kind that it can be correctly said that the Court has a discretion as to ordering inspection of documents. It is obvious that it would be absurd to say that the privilege could be got rid of merely by making a charge of fraud. The Court will exercise its discretion, not merely as to the terms in which the allegation is made, but also as to the surrounding circumstances, for the purpose of seeing whether the charge is made honestly and with sufficient probability of its truth to make it right to disallow the privilege of professional communications. [emphasis added]"
"No one doubts that the claim for professional privilege does not apply to documents which have been brought into existence in the course of or in furtherance of a fraud to which both solicitor and client are parties. To consult a solicitor about an intended course of action, in order to be advised whether it is legitimate or not, or to lay before a solicitor the facts relating to a charge of fraud, actually made or anticipated, and make a clean breast of it with the object of being advised about the best way in which to meet it, is a very different thing from consulting him in order to learn how to plan, execute, or stifle an actual fraud. "
"…it is equally clear in principle that no mere allegation of a fraud, even though made in the most approved form of pleading, will suffice in itself to overcome a claim of professional privilege, properly formulated." [emphasis added]
"...[T]he proposition that the mere pleading of fraud is in itself sufficient necessarily to defeat the claim if professional privilege cannot be maintained. To admit this proposition would be equivalent to saying that the claim to protection for professional privilege, a claim founded in the interest of the proper administration of justice, could be defeated by the skill of a pleader and the use of technical language whenever it was desired to obtain an inspection of documents, otherwise privileged, in the expectation of the discovery by this means of information to support a charge of fraud. On the other hand, in order to obtain the production of documents, it is certainly not necessary to prove the existence of fraud, and such an obligation might result in the non-production of documents, which in a particular instance might constitute the only evidence on which the plaintiff relied to establish his case. "
"…Whether the circumstances brought to the notice of the Court in a particular case are sufficiently explicit to establish a prima facie case of definite fraud, either by allegation, affidavit, or in some other way, will depend on the special facts in each case: Reg. v. Cox. But something more is required than mere pleading, or than mere surmise and conjecture." [emphasis added]
"Lord Halsbury's words are that before professional "confidence can be broken you must have some definite charge either by way of allegation or affidavit or what not." If I may venture to express this in my own words I should say that to obtain discovery on the ground of fraud the plaintiff must show to the satisfaction of the Court good ground for saying that prima facie a state of things exists which, if not displaced at the trial, will support a charge of fraud. " [emphasis added]
Submissions for HPII
i) The documents sought to be disclosed are highly relevant to an issue in the trial – the IOM Settlement;
ii) The documents clearly fall within the iniquity exception.
Submissions for Dr Smith
i) the evidence fails to establish "sufficient probability" of the truth of the allegations;
ii) the allegations are inadequately aligned to any cause of action.
i) It is not enough to allege fraud -the statement must be made in clear and definite terms;
ii) There must be prima facie evidence that has some foundation in fact.
It is not enough to allege fraud the statement must be made in clear and definite terms
There must be prima facie evidence that has some foundation in fact
i) The change in position by Mr Ruhan in the Orb Commercial Court claim as to whether he was the beneficial owner of the assets within the Arena Settlement Trust;
ii) The evidence that the Orb Claimants stated in proceedings in the Isle of Man that Mr Ruhan was the beneficial owner of the assets;
iii) The judgment of Cooke J;
iv) The evidence of correspondence that Cooper and McNally were employed by Mr Ruhan to "shield and hide" his assets;
v) The evidence of blackmail and bribery by Dr Smith of Messrs Cooper and McNally;
vi) The terms of the IOM Settlement.
"The claimant's case has always been that Mr Cooper and Mr McNally held the relevant assets in the arena settlement as nominees for Mr Ruhan. By being parties to transactions which form part of the Isle of Man settlement, they participated in the transfer of assets which they therefore considered to be those of Mr Ruhan to parties other than him on the basis of his alleged wrongdoings…" [emphasis added]
"Moreover there are clearly issues of fact which arise in relation to the exact circumstances in which the assets inside and outside the arena settlement claim to be transferred under the terms of the MSD and the other two disclosed documents. At the very time that assets were being transferred to SMA, Dr Cochrane and all were seeking orders in the Isle of Man which are predicated on the assets belonging to Mr Ruhan rather than to Mr McNally and Mr Cooper."
"Our investigations have uncovered evidence of long term tax fraud, tax evasion, misrepresentation, false accounting, forgery and money laundering. In particular, it appears that Mr Cooper and you [Mr McNally] caused to be created and have run on Mr Ruhan's behalf, a number of sham discretionary trusts…";
"In view of the action of Mr Cooper and Mr McNally described in the [letter], which we believe could be the subject of disciplinary action against them under the Code of Conduct of the Solicitors Regulation Authority and the Solicitors Act 1974…we are writing to you to share our findings and to give you the opportunity of providing an explanation before we decide on an approach to the Solicitors Regulatory Authority or other regulator".
"Dr Smith kept me informed of the settlement negotiations. As far as I am aware those initial discussions all took place between Dr Smith, Ms Stickler, Mr Cooper and Mr McNally, but without any lawyers present. Dr Smith told me the key discussion points were Mr Cooper's will, the Diamond settlement and the impact of the English litigation on Messrs Cooper and McNally personally.
Dr Smith told me that at a crucial point in a meeting Mr Cooper was sitting back with his hands behind his back not paying very much attention. Dr Smith said he leaned forward and threw a file containing Mr Cooper's will on the table and said words to the effect, "that will put you in jail Simon". Dr Smith said that Cooper appeared shocked on reading the contents of the file. For completeness I should state that Ms Stickler has recently intimated to Mr Chan through solicitors that although she was present at those meetings, she has no recollection of Cooper's will being mentioned.
At that time I did not give much thought to this, and it did not occur to me that using legally obtained documents might not be legitimate negotiation by Dr Smith. I did not share this with Mr Chan until very recently.
Dr Smith did share with me an email from his friend Mark Keegan to him dated 8 November 2013 (page # of AC2) referring to a conversation the previous evening with Colin Emson. I believe that Mr Emson knows Messrs Cooper and McNally well, and Mr Keegan knows Dr Smith well. The email stated "Colin rang at about 10.15pm last night at McNally's request. He asked me to telephone you and suggest that the payment should be split £9m escrow, £1, risk. The reason he gave was that McNally thought he was giving into blackmail and there might be no end. McNally said he trusted Colin and asked Colin if he trusted me and if I trusted Gerald: blah, blah, blah. It's not blinking, it's crying" and went on to say "Colin spoke as if that was the case and asked me to believe that the £10m was McNally's. I was asleep when he rang and could not summon hollow laughter." At this time, I thought that the reference in this email to "blackmail" was simply a reference to tough negotiation by Dr Smith." [Emphasis added]
i) Mr Ruhan's change of position in the pleadings in the Orb Commercial Court Claim is not evidence but an assertion that Mr Ruhan is in fact the beneficial owner of the relevant assets. A fortiori it is not evidence that Mr Cooper and Mr McNally were acting as fiduciaries for Mr Ruhan and acted in breach of fiduciary duty in respect of the IOM Settlement.
ii) I do not read the passages in the judgment of Cooke J (who refers to Mr Cooper and Mr McNally as nominees) as amounting to a finding that Mr Cooper and Mr McNally were participating in the transfer of assets which they considered to belong to Ruhan. At most, as counsel acknowledged (page 61 of the transcript), the judge was pointing out the contradictory stances taken by the Orb Claimants. Although the documents underlying the application before Cooke J may be evidence that assets were being transferred at a time when the Orb Claimants had taken the position in proceedings in the Isle of Man that Mr Ruhan was the beneficial owner of the assets belong to Mr Ruhan rather than Messrs McNally and Mr Cooper, the judgment does not provide additional evidence of the iniquity alleged either acting in breach of fiduciary duty or a broader fraud.
iii) The letter from Pro Vinci asserts that Mr Cooper and Mr McNally were employed by Mr Ruhan to shield and hide his assets. HPII suggests that the letter can be used to draw an inference not that Mr Ruhan was the beneficial owner, but instead that the Orb Claimants believed that this were the case. It is far from clear that it is anything other than one strand of the evidence of the alleged iniquity.
iv) I note that the observations of Ms Aird-Brown on the suggested inferences to be drawn are not evidence but merely her opinion. Further and more significantly, Mr Campbell's witness statement is untested from a person who is accepted to have a grievance with Mr Ruhan and his evidence is based on hearsay about a meeting at which he was not present.
v) As to the terms of the settlement it is unclear that the payment is prima facie evidence of misconduct: Dr Smith describes this as a without prejudice good faith payment in exchange for his stay in the disclosure proceedings. Whilst this is disputed this is a matter which will be only resolved at trial. The issue of beneficial ownership again is only one strand of the elements which will need to be established at trial.
[The remainder of this paragraph has been redacted on the basis of privilege and is reproduced in the confidential schedule attached which may not be published (other than to the parties and their legal advisors) without permission of the court.]