Introduction
Facts
Application against Clyde & Co
Clyde & Co's representation of Shalabayev
First issue: disclosure of contact details
Second issue: asset disclosure
Third issue: disclosure of sources of funding
Comment
The solicitor-client relationship is closely protected in English law and is shored up with numerous safeguards. The most fundamental protections are arguably those which seek to ensure access to effective legal advice on candid terms by insulating the content of the relationship from external scrutiny, such as the principles of privilege and client confidentiality. However, even these principles have limits, which have recently been tested and exposed.
In the latest reported decision in the increasingly Hydra-like litigation surrounding JSC BTA Bank, the court considered an application made against Clyde & Co. The law firm was acting for a defendant to the litigation against which the bank had secured a freezing order.
The freezing order contained the usual ancillary provisions that required the respondent to disclose information about his asset position in order to make the freezing order effective. The defendant was wilfully refusing to obey the asset disclosure order. The issue in the application was the extent to which Clyde & Co could be ordered, in light of its client's contempt of court, to provide the bank with information that would assist the bank in enforcing the terms of the order.
The litigation comprises two closely coordinated actions: one brought in the Chancery Court and one in the Commercial Court. The claimant in both actions is the bank, a Kazakh entity which is seeking to recover hundreds of millions of dollars from a number of individuals and corporate entities. The defendants are alleged to have been part of a fraudulent conspiracy, at the centre of which is said to be the former chairman and owner of the bank, Mr Ablyazov. The defendants deny these allegations.
The present application concerned Mr Syrym Shalabayev, Ablyazov's brother-in-law. The bank claims that Shalabayev was a party to the conspiracy to defraud. In November 2010 a worldwide freezing order was made against Shalabayev, which contained the standard requirements for disclosure of assets and disclosure of information to assist in the tracing of allegedly misappropriated moneys. The freezing order was served on Shalabayev, but he made no attempt to comply with its provisions. His whereabouts were unknown.
The bank issued and served committal proceedings against Shalabayev. In May 2011 he was found in contempt of court. Sentencing was adjourned and a warrant was issued to secure his attendance at a hearing set for June 20 2011. Shortly before the hearing, Clyde & Co was instructed by Shalabayev to contact the bank in order to seek a further adjournment of the sentencing hearing. The bank's immediate response to the approach from Clyde & Co was to issue the application. On June 27 2011 Shalabayev was sentenced in his absence to 18 months' imprisonment. Although Shalabayev did not attend, as required by the warrant, he was represented at the hearing by Clyde & Co and junior counsel.
Application against Clyde & Co
The bank's application sought the following information:
- all contact details (past and present) held for Shalabayev;
- all information within Clyde & Co's knowledge or reasonable belief which Shalabayev was required to provide under the asset disclosure provisions of the freezing order; and
- details of all moneys, bank accounts or other assets used by Shalabayev for paying Clyde & Co's fees and disbursements.
Clyde & Co's representation of Shalabayev
In around February 2009, before the bank brought proceedings, Clyde & Co was instructed by Ablyazov and a number of associated companies and individuals, including Shalabayev. Among other things, they sought advice on the possibility of freezing orders and other matters arising out of potential proceedings by the bank.
Shortly after the litigation commenced in August 2009, the then defendants changed solicitors. Shalabayev, who was not at that stage a defendant, did not move with them, but asked Clyde & Co to return any hard-copy documents and to delete all electronic copies from its systems, which the firm did. After March 2010 Clyde & Co had only intermittent contact with Shalabayev. Clyde & Co accepted that it had emails, addresses and mobile phone numbers for Shalabayev. However, the firm stated that these were not all current, and that Shalabayev had instructed the firm to keep them in strict confidence, as he feared for his safety and that of his family.
First issue: disclosure of contact details
The judge emphasised that the key principle at stake was that there is a "very strong public interest in people having free and unfettered access to legal advice, coupled with the absolute and unqualified status accorded by English law to legal professional privilege". He observed that:
"In general, I can think of few things more likely to inhibit the exercise by a client of his fundamental right to seek legal advice than an order requiring his solicitor to disclose to an adverse party contact details which were supplied to the solicitor in strict confidence and for the sole purpose of enabling the client to communicate with the solicitor. In my view any such order would tend to undermine the relationship of confidence which must subsist between solicitor and client if the client is to be able to unburden himself freely to the solicitor. There would be a real, and not just a theoretical, risk of the client being inhibited from seeking legal advice if it was known from the outset that his confidential contact details were liable to be disclosed to the other side in litigation, merely because the client failed to obey a Court Order."
Turning to the issue of whether the court had jurisdiction to make the type of order sought, the judge considered a number of older authorities, which he found to be good illustrations of why such applications would normally be refused. However, in the judge's view they did not show that there was no jurisdiction to make such an order. He found that there was an implied jurisdiction under Section 37(1) of the Senior Courts Act to make such ancillary orders as were just and convenient in order to make the prior freezing order effective.
The judge then considered whether to exercise his discretion to make such an order. He found that the following factors should be taken into account:
- No order should be made which would inhibit Shalabayev's fundamental right to seek and obtain legal advice from Clyde & Co.
- The court should as far as possible respect the express condition of confidentiality subject to which the contact details had been passed to Clyde & Co.
- There is a clear distinction in English law between the right to legal professional privilege, which is absolute, and the right to protection of confidential information, which can be overridden by other considerations.
- There is 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 applies "with particular force to enforcement of the committal order", as "part of the purpose of committing a contemnor to prison is to encourage belated compliance by him with the Court Orders which have been flouted".
Weighing these factors, the judge found that this aspect of the application should be granted. In his view, the balance was heavily tipped by the fact that Shalabayev was evading the committal order. The committal proceedings were complete and Shalabayev had no ongoing need of privileged advice from Clyde & Co on that aspect of proceedings. The judge considered that:
"the committal order makes all the difference. All reasonable efforts must now be made to ensure that Mr Shalabayev is apprehended so that he can begin to serve his sentence. It is in the highest degree unsatisfactory that he can still be at large, as a fugitive from justice, while he has solicitors on the record acting for him, and intervening in legal proceedings as and when it suits his purpose. This type of procedure is liable to bring the administration of justice into disrepute and to give the impression that British justice is an à la carte menu from which he can order a choice without ever having to pay the bill."
Second issue: asset disclosure
The judge held that this part of the application was misconceived and should be dismissed. He found that any relevant information that Shalabayev had provided to Clyde & Co had been provided in the course of seeking advice from the firm; therefore, it was covered by the absolute cloak of privilege. Requiring Clyde & Co to provide the information to the bank would also make the firm's position with its client untenable, which would inhibit Shalabayev's ability to obtain legal advice. Furthermore, the judge considered that:
"if I were to grant the order sought it would soon become standard practice for claimants like the Bank, in whose favour unsatisfied disclosure orders have been made, to bring similar applications against solicitors of the defaulting party. That is a prospect which I can only view with dismay, and I think it is no accident that counsel for the Bank were unable to show me any reported case where such an order, or anything like it, has ever been made."
Third issue: disclosure of sources of funding
The original application was for disclosure of information relating to payments made to Clyde & Co by Shalabayev. In the course of evidence, Clyde & Co stated that it was unaware of having received payment from Shalabayev personally since the litigation had commenced. In light of this, the bank shifted its ground and sought information as to the source of payment for the services provided to Shalabayev, whether such payment was from him or not. In response, Clyde & Co confirmed that Shalabayev's defence of the action "was not being funded by any third party who had a financial or other commercial interest in its outcome or is in any way controlling its course". The judge asked Clyde & Co to provide a letter which would specify that its statement covered the funding of the committal proceedings in particular. On the assumption that such a letter would be forthcoming, this aspect of the bank's application was to be dismissed. If Shalabayev's costs in relation to the committal proceedings had been met by an interested third party, the judge would make an order requiring Clyde & Co to reveal the source of the funding.
The High Court increasingly has to grapple with complex litigation involving reluctant and recalcitrant foreign parties, often operating in jurisdictions which are not necessarily amenable to enforcing English court orders. Such issues are likely to arise again in this litigation. The saga of the Masri litigation provides another example. In response to these challenges, an increasingly robust and muscular approach is being adopted to try to ensure that the High Court's authority is not eroded.
The circumstances of the case were extreme and the scope of the disclosure that was ordered was limited in comparison to what was sought. In dismissing the broader attempts to penetrate the sanctity of the relationship between solicitor and client, the judge stressed that he was attempting to protect Shalabayev's right to seek uninhibited legal advice from English solicitors. Nevertheless, solicitors for such determinedly recalcitrant defendants will face a delicate task of explaining the limits to which they can resist disclosing contact information to hostile parties where the courts view disclosure as necessary to give effect to their orders.
For further information on this topic please contact Jake Hardy at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).