Practice

Pre-trial or post-judgment - Freezing order - Disclosure - Committal order

JSC BTA Bank v Solodchenko and others: ChD (Mr Justice Henderson): 5 August 2011

The claimant, JSC BTA Bank (the bank), applied for disclosure of information and documents against Clyde & Co (Clydes) in its capacity as the solicitors on the record acting for the 14th defendant, SS.

The application was made in the action proceeding in the Chancery Division (the AAA action) in which the bank sought to trace and recover the proceeds of AAA-rated investment bonds with a nominal value of $290m which it alleged had been fraudulently misappropriated by the 18th defendant, A, the former chairman and owner of the bank, and a number of other conspirators.

SS was A’s brother-in-law, and according to the bank he was both a party to the conspiracy to defraud and played a leading role in administering a large network of some 600 companies, mostly located in offshore jurisdictions, on A’s behalf (see [2011] All ER (D) 70 (Apr)). None of the defendants to the AAA action had yet advanced any positive case that the transactions involving the AAA investments were commercially justified or otherwise legitimate.

A worldwide freezing order was granted against SS on the footing that the bank had a good arguable case that he was party to the conspiracy to defraud. The order contained standard requirements for the disclosure of assets (very widely defined) and for the disclosure of information which would enable the allegedly misappropriated funds or their products to be traced.

Despite the personal service of the order, SS made no effort to comply with any of its provisions and SS was found to be in contempt of court and a committal order was made.

The bank issued an application for disclosure against Clydes, seeking disclosure of SS’s contact details and assets (see [7] of the judgment). Clydes acted on his behalf and were evidently able to communicate with him. Furthermore, Clydes made applications on his instructions when it suited him to do so.

The application raised some novel issues of considerable practical importance to solicitors acting for a client who is in contempt of court and/or in breach of asset ­disclosure orders.

The issues were, inter alia: (i) whether the court had jurisdiction under the Senior Courts Act 1981 (the act) to order disclosure; and (ii) whether the court was to exercise its discretion to order disclosure having regard to the competing interests of legal professional privilege and the public interest in court orders being obeyed.

The application would be allowed.

There was an inherent power under section 37(1) of the act to make any ancillary order, including an order for discovery, to ensure the effectiveness of any other order made by the court, if it was just and convenient to do so. The ancillary jurisdiction did not have to be tied to the grant of an injunction. Alternatively, in certain situations, there was inherent jurisdiction and power in the court to control its officers, and to require a solicitor to disclose relevant required infor­mation (see [25], [26], [35] of the judgment).

The court had to be alert not to make any order which might inhibit the fundamental right of SS to seek and obtain legal advice from Clydes. The court should as far as possible respect the express condition of confidentiality subject to which SS had provided his contact details to Clydes.

There was a clear distinction in modern English law between a client’s right to claim legal professional privilege, which was absolute, and the right to protection of confidential information, which was capable of being overridden by other considerations, where it was well established that confidentiality did not of itself justify non-disclosure of a relevant document or information.

Further, there was a strong public interest in ensuring obedience to court orders generally, and in not allowing the court to be baffled by the complexities of international fraud cases and opaque asset-holding ­structures.

The public interest applied with particular force to enforcement of the committal order against SS, because part of the purpose of ­committing a contemnor to prison was to encourage belated compliance by him with the court orders which have been flouted.

In the instant case, the court had jurisdiction to make the order sought. The order sought by the bank did not involve the disclosure by Clydes of any actual legal advice which it may have given to SS, nor would it involve disclosure of any communications passing between SS and Clydes for the purpose of obtaining legal advice.

Nevertheless such an order would tend to undermine the relationship of confidence between solicitor and client if the client was to be able to unburden himself freely to the solicitor.

The primary purpose of the disclosure was to aid enforcement of the committal order. In the absence of that order, the court would probably not have been prepared to make the order sought, but the committal order made all the difference and the balance came down in favour of ordering disclosure by Clydes of all the contact details, past and present, which it held for SS (see[19], [38], [39] of the judgment).

Philip Marshall QC and Caley Wright (instructed by Hogan Lovells International) for the claimant; Tim Owen QC and Ian Smith (instructed by Clyde & Co) for the 14th defendant.