Rawlinson And Hunter Trustees SA & Ors v Akers & Anor [2014] EWCA Civ 136

[2014] EWCA Civ 136

Case No A2/2013/2307

IN THE COURT OF APPEAL (CIVIL DIVISION)

[2013] EWHC 2297 (QB)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

Mr Justice Eder

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 20/02/2014

Before

LORD JUSTICE MOORE-BICK

LORD JUSTICE TOMLINSON

LORD JUSTICE RYDER

Between

Rawlinson and Hunter Trustees SA & OrsRespondents

Akers & AnrAppellants

Charles Hollander QC, Rosalind Phelps and James Duffy (instructed by Stephenson Harwood LLP) for Respondents

William Trower QC and David Allison (instructed by Chadbourne and Parke (London) LLP) for Appellants

Hearing Hearing date : 30 January 2014

Judgment

Lord Justice Tomlinson :

[1]In these proceedings Robert and Vincent Tchenguiz (“RT” and “VT”) and companies and trusts associated with them through which their business is conducted seek damages from the Director of the Serious Fraud Office (“SFO”). As is well known, in March 2011 RT and VT were arrested at their homes and search warrants were executed both at their residences and at business premises of the associated companies. The Claimants say that the searches and seizures by or at the instigation of the Director were unlawful as were the arrests and investigations connected therewith. They say that the searches, arrests and investigations and the publicity surrounding them had a disastrous effect on their business interests, causing extensive financial losses and reputational harm.

[2]The application for the search warrants was made to His Honour Judge Paul Worsley QC at the Central Criminal Court. It is said by the Claimants that five reports (“the Reports”) prepared by Grant Thornton UK LLP (“GT”) played a key role in the preparation of, and informed the content of, the material placed before the judge in support of the application for the search warrants, which application was made under s.2(4) of the Criminal Justice Act 1987. Those reports were shown to the SFO by GT prior to the application. The SFO was not permitted to make copies. Thus the SFO will not be in a position to disclose the reports in the action for damages brought against it.

[3]Not unnaturally the Claimants have sought disclosure of the reports from those able to disclose them, the Appellants on this appeal. An application has been made against them in the proceedings for third party disclosure pursuant to CPR 31.17. The Appellants, Mr Akers and Mr McDonald, are both chartered accountants. Mr Akers is a partner in GT. Mr McDonald is a director of Grant Thornton (BVI) Limited. They are the Joint Liquidators of a group of companies referred to in the proceedings as the “Oscatello Companies”. The Joint Liquidators say that they commissioned the five reports, so they acknowledge that they are in a position to disclose them.

[4]Eder J in the Commercial Court

[2013] EWHC 2297 (QB)

decided that it is in principle necessary and appropriate to make an order for disclosure of all five reports. The Reports are plainly relevant not just to the case which the Claimants wish to put forward but also to the defence of the SFO that it was entitled to have regard to information made available to it by GT. These issues were contested before the judge but his decision thereon is not sought to be challenged on appeal.

[5]The Joint Liquidators also resisted disclosure claiming that the Reports are protected by litigation privilege. The judge rejected this claim and directed disclosure. It is this aspect alone of his decision which is the subject of this appeal.

[6]The claim to privilege is supported by a witness statement dated 5 July 2013 of Mr John Verrill, a solicitor, licensed insolvency practitioner and partner in the firm of Chadbourne and Parke (London) LLP.

[7]The background to the applications is important and was summarised succinctly by the judge. There is no purpose in my doing anything other than reproduce that summary here:- “The Joint Liquidators 6. The facts relating to the appointment of the Joint Liquidators and their conduct of the liquidation are set out in Mr Verrill’s statement. Certain of such facts are or may be in issue but without prejudice to any such possible dispute in the future, it is convenient to adopt for present purposes the brief summary set out in Mr Trower’s skeleton argument which was as follows. 7. The Joint Liquidators act as liquidators of Oscatello and a number of additional companies registered in the British Virgin Islands (together the “Oscatello Companies”). 8. The Oscatello Companies formed part of a complex group of companies including their subsidiary undertakings which, at all material times (following a restructuring of the group in late 2007) were ultimately controlled by Investec Trust (Guernsey) Limited (“Investec”) and Bayeux Trustees Limited (together with Investec, the “TDT Trustees”) in their capacity as joint trustees of the Tchenguiz Discretionary Trust (the “TDT”). 9. The main beneficiaries of the TDT were Robert Tchenguiz (“RT”) and his children and remoter issue. The TDT was settled on 26 March 2007 by a declaration of trust made by, among others, Investec in its capacity as trustee of the Tchenguiz Family Trust (“TFT”), pursuant to a power to settle new trusts contained in the TFT instrument. The beneficiaries of the TFT include RT and his brother VT. 10. The Oscatello Companies performed two main roles:(i) they held positions by way of direct equity/debt investments; and

(ii) they participated in large-scale derivatives and futures trading. Investment decisions were made by the TDT Trustees in conjunction with or at the direction of R20 Limited (“R20”). From around the date of the inception of the TDT in March 2007, R20 advised the TDT and the companies held under its umbrella (including the Oscatello Companies) on their general commercial and investment strategies. RT is a director of R20. 11. In around late 2007, the Oscatello Companies were restructured. A framework agreement providing the basis for the continued operation of the Oscatello Companies was concluded with, among others, the Icelandic bank Kaupthing hf (“Kaupthing”). Kaupthing and certain of its subsidiaries agreed to continue to fund the Oscatello Companies’ operations by way of an overdraft facility and other forms of lending, secured over shares in the Oscatello Companies. That funding was used principally for the purposes of purchasing and servicing equity and debt instruments in the form of contracts for differences and credit default swaps. 12. The amount of funding provided by Kaupthing to the Oscatello Companies increased rapidly throughout 2008, largely as a consequence of a need to meet margin calls as asset values deteriorated. By the end of 2008, Kaupthing had collapsed and the Oscatello Companies could no longer meet their obligations. 13. On 10 December 2008, Mr Akers and Mr McDonald were appointed as joint receivers over the shares of the Oscatello Companies. 14. On 18 August 2009, Mr Akers and Mr McDonald were appointed as joint liquidators of a number of the Oscatello Companies. 15. On 16 February 2010, Mr Akers and Mr McDonald were appointed as joint liquidators of Oscatello. 16. The appointment of Mr Akers and Mr McDonald as liquidators has been recognised in England and Wales by order of this court dated 31 March 2010 made pursuant to the terms of the Cross Border Insolvency Regulations 2006. Their appointment as liquidators has also been recognised in Guernsey by order of the Royal Court of Guernsey dated 21 April 2011. 17. The Joint Liquidators estimate that the shortfall in the assets of the Oscatello Companies to meet the claims of its creditors is in excess of £1,950,000,000. 18. The liquidation of the Oscatello Companies has been exceptionally complex. There has been worldwide litigation, including complex and hard fought proceedings in London, the Isle of Man, Guernsey and the British Virgin Islands. The Oscatello Companies have frequently found themselves on the other side of litigation to parties associated with RT and VT. One example is provided by the proceedings pending before the Royal Court of Guernsey. The Guernsey proceedings concern a claim by the TDT Trustees against Oscatello and others seeking to challenge the terms and enforceability of intra-group lending by the Oscatello Companies. RT is a protector of the TDT and gave oral evidence to the Guernsey Court. 19. According to Mr Verrill, it is likely that there will be further litigation between the Oscatello Companies and parties associated with VT and RT. In this regard: i) the Joint Liquidators continue actively to consider the commencement of proceedings against a large number of parties (including those associated with RT and VT) in order to recover assets or to receive compensation in respect of assets of the Oscatello Companies which appear to have been misapplied; and ii) the solicitors to the VT Claimants have indicated that they are contemplating claims against the Joint Liquidators arising from the criminal proceedings brought by the SFO. The solicitors to the VT Claimants have made a number of very serious allegations, including an allegation that the Joint Liquidators provided misleading and inaccurate information to the SFO for the purpose of damaging VT and the TFT and forcing the settlement of civil actions on unfavourable terms. The alleged losses sustained by the TFT are said to amount to in excess of £2.5 billion. Background 20. The relevant background to the present application was summarised in Ms Phelps’ skeleton argument. For present purposes, it is convenient to adopt that summary subject to certain additions/amendments in the light of certain points made by Mr Trower. 21. The starting point is the Information [placed before Judge Worsley]. This referred extensively to the reports prepared by GT – for example, para 59 (referring to an “in depth analysis of Oscatello Investments Limited” done by GT); para 76:

“Grant Thornton, who have been appointed by the Resolution Committee of Kaupthing Bank in the [sic] Iceland, have carried out extensive financial forensic analysis of this complex structure which was put forward by Robert TCHENGUIZ as collateral for the substantial borrowing from Kaupthing. A number of Reports have been prepared by Grant Thornton detailing their findings and these have been reviewed by the SFO.”; and para 125: “Grant Thornton has been appointed by the Resolution Committee in Iceland in order to analyse the Kaupthing lending to Tchenguiz connected companies and to consider potential offences and potential defendants.” 22. In the course of the JR proceedings, after the SFO had conceded that the warrants concerning VT should be quashed, the SFO (via the Treasury Solicitors “TSols”) wrote a detailed letter to the JR claimants dated 21 February 2012 relating to the errors in the Information. The letter stated that the investigation into VT had been triggered by a telephone call from GT on 9 September 2010, following which the SFO were permitted to view draft reports prepared by GT. It was obvious from that letter that detailed notes had been taken of the material provided by GT and viewed by the SFO. 23. In March 2012, well before the substantive JR hearing, the solicitors representing the JR claimants wrote to the solicitors for GT (Simmons & Simmons), enclosing a copy of TSols’ letter of 21 February 2012. The letter was copied to Mr Akers and stated that the substantive JR hearing was listed to start on 22 May 2012. The letter highlighted the concerns about the role played by GT in providing information to the SFO. The letter asked for copies of any documents shown to the SFO, and specifically asked GT (at para 43) to explain the basis for any assertion that the reports were privileged, including the identity of the person or persons on whose behalf the rights were being asserted. The letter ended by pointing out (in para 111) that it was intended to provide GT with an adequate opportunity to consider the concerns and to provide an answer to them before the substantive hearing and that the option of joining the proceedings as an interested party was available. It was also made clear that the correspondence would be placed before the court, as in the event happened. 24. In response, Simmons & Simmons for GT refused to provide the documents, on the basis, inter alia, that the information provided by GT to the SFO was information which GT received or prepared during the course of activities carried out on behalf of its client, the Resolution Committee of Kaupthing; and that information was confidential as a matter of Icelandic law and GT could not answer the questions raised without breaching professional rules of confidentiality. GT (via Simmons & Simmons) also declined to play any part in the substantive JR proceedings, which drew some criticism from the Divisional Court, as set out below. No mention was made by Simmons & Simmons in the letter of legal professional privilege, or of any alleged interest of the Joint Liquidators in the GT reports. The close involvement of GT was subsequently explained in more depth in a detailed witness statement submitted by Mr Brinkworth of the SFO. Mr Brinkworth’s statement 25. Meanwhile, at a directions hearing on 22 February 2012, the SFO was ordered to serve evidence relating to the matters set out in the 21 February 2012 letter, essentially in order to explain the SFO’s position. In his statement served on 30 April 2012, Mr Brinkworth said in terms (para 8) that: “In this overview I have referred almost exclusively to Reports prepared by [GT], the firm appointed as joint liquidators by Kaupthing hf’s (Khf’s) Resolution Committee following the bank’s collapse, and the SFO during the course of its investigation. These Reports provide a useful (and fair) summary of the basis of the core allegations within the Information, and particularly those relating to Pennyrock.” 26. Mr Brinkworth’s statement went on to refer (as had the 21 February 2012 letter) to a number of GT reports which the SFO were permitted to view but not to copy apparently on the ground that they were privileged: see paras 26, 31 and 36. As set out in more detail below, detailed notes taken from a number of the Reports sought in this application were exhibited to Mr Brinkworth’s statement and referred to in open court during the course of the JR hearing. The DC Judgment recorded the reliance placed on GT by the SFO and in particular the following: “It is now clear that the basis of much of what was said to be suspected criminality was based on information provided by Grant Thornton and to a lesser extent Weil, Gotshal and Manges. The Information disclosed that Grant Thornton had been appointed by the Resolution Committee to analyse the lending by Kaupthing and the entities connected with VT and RT. The Information disclosed the involvement of Grant Thornton in the allegations made against RT and in respect of Oscatello and the litigation against Oscatello to which we have referred at paragraph 30. (para 94) … This is a case where it appears that the SFO relied very heavily on the work and conclusions of Grant Thornton ...” (para 96) The Divisional Court commented on the lack of co-operation of GT: “195. However, as we have set out at paragraphs 43-44 above, these allegations rest upon what the SFO were told by Grant Thornton on and after 9 September 2010. We only have the notes of the meeting and not the copy of the report of Grant Thornton. They declined in answer to a request from VT to make available the evidence on which such serious allegations were advanced to the SFO. We therefore do not know the basis of Grant Thornton's opinion on the valuation carried out by Oliver Wyman or their opinion on the acceptance of that valuation in the audited accounts. Certainly the allegation (which we have set out at paragraph 43) made by Grant Thornton to the SFO that VT may have misled the auditors as to the period on which the actuarial valuation was made was unfounded, the entire basis of valuation is recorded in note 7 to the accounts. Nor do we know the basis of the contention of Grant Thornton and the Resolution Committee that Kaupthing had not conducted due diligence. 196. Lord Goldsmith severely criticised this conduct of Grant Thornton, having put them on notice on 15 March 2012 and invited them to become a party to the proceedings and to state whether the allegations were maintained. Grant Thornton acknowledged the receipt of this notice in a letter written by their solicitors on 9 May 2012. They stated that they would not become a party, they had not been served with the proceedings and were not in a position to provide information because of the confidentiality provisions of Icelandic law, the Code of Ethics of the Institute of Chartered Accountants and legal professional privilege. They contended that no criticism should be made of their conduct, as the SFO had accepted that the misstatements to the judge were its fault. Lord Goldsmith made clear that the fact that the allegations were still being maintained was continuing to have an adverse effect on the interests of TFT and VT and preventing TFT from repaying the Pennyrock loan. 197. We do not consider that it is for us to comment on the conduct of Grant Thornton, save to say that it is unfortunate that the court does not know the basis for the criticism of the actuarial valuation and the audited accounts. It is perhaps difficult to understand how provisions of Icelandic law or the Code of Ethics of the Institute of Chartered Accountants or legal professional privilege could have permitted Grant Thornton to assist the SFO, after service of a s.2 notice, in making allegations of criminal conduct against RT and VT in relation to the valuation and the accounts, but not to be in a position to assist this court by providing the basis for those two specific allegations when VT and RT challenged by way of judicial review the case made against VT and RT by the SFO who had relied on Grant Thornton's views on those two specific allegations. From the observations we have made in paragraph 195, the provision of information would have been of assistance to the court.” 27. Following the DC Judgment, the VT Claimants renewed their requests for disclosure of the reports prepared by GT from Simmons & Simmons by letter dated 31 August 2012. 28. On 20 September 2012, Skadden Arps acting on behalf of the Joint Liquidators wrote to the Divisional Court with copies to various parties including the VT Claimants’ solicitors, Stephenson Harwood. The letter related to the then pending application to use documents from the JR proceedings for the purposes of other proceedings. The letter stated that such application was likely to relate to information and/or documents which belong to Oscatello and which were confidential and/or privileged. It asked that a copy of the application be provided, so that Oscatello could consider whether to intervene. 29. In the event, an order was subsequently made by the court dated 19 November 2012 which provided that Mr Brinkworth’s statement and exhibits be deemed to be in the public domain. 30. The VT Claimants again renewed their disclosure requests of the Reports on 13 February 2013. Notwithstanding extensive correspondence dating back to March 2012, there was, Ms Phelps submitted, no suggestion at this stage that the reports shown by GT to the SFO were prepared for anyone other than Kaupthing acting through its Resolution committee (‘ResCom’): see (i) Mr Brinkworth’s statement; (ii) the Simmons & Simmons letter referred to in paragraph 24 above, which referred in terms to the information being provided to the SFO on behalf of GT’s client, Kaupthing; and (iii) para 4 of the DC Judgment where it was stated: “… in the account of the factual background we refer to Grant Thornton's reports. Grant Thornton and Weil, Gotshal and Manges were appointed on the collapse of Kaupthing by the group responsible for its affairs known as the Resolution Committee to seek to recover funds for the creditors. Their reports formed an important basis for the SFO's investigation, as we shall explain.” 31. On 15 March 2013, CP wrote to say that it had “recently” been instructed by the Joint Liquidators of Oscatello. They asked for time to consider the “ownership and control” of certain of the Reports in order to determine the scope of any litigation privilege attaching. Their further letter of 26 March 2013 described the 5 Reports the subject of this application and confirmed that they had been shown to the SFO. It was asserted that the Reports were covered by litigation privilege - a point which had not been taken by Simmons & Simmons during the JR itself. (As I understand, it was only in the letter from Skadden Apps dated 20 September 2012 referred to above that any question of privilege had previously been suggested.) 32. By letter dated 28 June 2013, Stephenson Harwood invited CP to explain properly the basis for the assertion that the Reports were privileged, but it was not until the service of Mr Verrill’s statement that any proper attempt was made to do this (beyond the bare assertions of the 26 March 2013 letter). This claim is considered further below. 33. In the meantime, other GT reports referred to in Mr Brinkworth’s statement were disclosed by Simmons & Simmons (letter 13 March 2013), who stated that Kaupthing (i.e. the successor to ResCom, the Winding Up Committee) considered the reports to be confidential but that, contrary to what Simmons & Simmons had previously asserted, Icelandic law would permit their disclosure. No point was taken in relation to privilege.” i) the Joint Liquidators continue actively to consider the commencement of proceedings against a large number of parties (including those associated with RT and VT) in order to recover assets or to receive compensation in respect of assets of the Oscatello Companies which appear to have been misapplied; and ii) the solicitors to the VT Claimants have indicated that they are contemplating claims against the Joint Liquidators arising from the criminal proceedings brought by the SFO. The solicitors to the VT Claimants have made a number of very serious allegations, including an allegation that the Joint Liquidators provided misleading and inaccurate information to the SFO for the purpose of damaging VT and the TFT and forcing the settlement of civil actions on unfavourable terms. The alleged losses sustained by the TFT are said to amount to in excess of £2.5 billion. Mr Brinkworth’s statement “It is now clear that the basis of much of what was said to be suspected criminality was based on information provided by Grant Thornton and to a lesser extent Weil, Gotshal and Manges. The Information disclosed that Grant Thornton had been appointed by the Resolution Committee to analyse the lending by Kaupthing and the entities connected with VT and RT. The Information disclosed the involvement of Grant Thornton in the allegations made against RT and in respect of Oscatello and the litigation against Oscatello to which we have referred at paragraph 30. (para 94) … This is a case where it appears that the SFO relied very heavily on the work and conclusions of Grant Thornton ...” (para 96) “195. However, as we have set out at paragraphs 43-44 above, these allegations rest upon what the SFO were told by Grant Thornton on and after 9 September 2010. We only have the notes of the meeting and not the copy of the report of Grant Thornton. They declined in answer to a request from VT to make available the evidence on which such serious allegations were advanced to the SFO. We therefore do not know the basis of Grant Thornton's opinion on the valuation carried out by Oliver Wyman or their opinion on the acceptance of that valuation in the audited accounts. Certainly the allegation (which we have set out at paragraph 43) made by Grant Thornton to the SFO that VT may have misled the auditors as to the period on which the actuarial valuation was made was unfounded, the entire basis of valuation is recorded in note 7 to the accounts. Nor do we know the basis of the contention of Grant Thornton and the Resolution Committee that Kaupthing had not conducted due diligence. “… in the account of the factual background we refer to Grant Thornton's reports. Grant Thornton and Weil, Gotshal and Manges were appointed on the collapse of Kaupthing by the group responsible for its affairs known as the Resolution Committee to seek to recover funds for the creditors. Their reports formed an important basis for the SFO's investigation, as we shall explain.”

Mr Brinkworth’s statement

[8]It was central to the submissions of Mr William Trower QC for the Joint Liquidators that their position should be considered independently of that of GT. That submission is self-evidently correct, as the Joint Liquidators owe duties to the court and to the creditors which are quite independent of their status as partners in or employees of any GT firm or company. But, as Mr Charles Hollander QC for the Respondents pointed out, Mr Akers had during the relevant history worn different hats. Although they had an earlier involvement as detailed above, it was in February 2010 that Mr Akers and Mr McDonald became Joint Liquidators of Oscatello. On 29 October 2009 Mr Akers and other members of GT Insolvency Services met with the SFO. It was at that meeting that Mr Akers suggested that co-operation between GT and the SFO should be possible, but identified the conundrum that the SFO needed first to have access to s.2 (scilicet of the Criminal Justice Act 1987) powers in order to gain sight of the report into GT’s investigation, whilst the evidence contained in GT’s report appeared to represent the best material upon which reliance could be placed in order to justify starting a formal SFO investigation. I mention this not to suggest impropriety – as mentioned above, claims against the Joint Liquidators are apparently contemplated and I express no view whatever on matters irrelevant to the present appeal. The point is simply that the involvement of Mr Akers in his different capacities, coupled with the belated manner in which the interest of the Joint Liquidators in the Reports was revealed, rendered it incumbent on Mr Verrill to disentangle the roles of GT and the Joint Liquidators with some care and specificity.

[9]I should say a little more about the proceedings in Guernsey. They were brought in March 2010. Mr Verrill described these proceedings at paragraphs 25-27 of his witness statement in these terms:- “25. The Guernsey Proceedings originally focused on the validity of loans between TDT and the Companies, with the Former Trustees initially disputing that they were in fact loans. It was later admitted during the hearing that the ‘loan arrangements’ are loans which are due and payable to the Companies. As such, the main point of disagreement remaining between the parties to be addressed by the Guernsey Court’s judgment is the application of Article 32 of the Trusts (Jersey) Law 1984 (“Article 32”). 26. Under conventional trust law, a creditor’s claim is against a trustee personally and a creditor does not have a claim to the trust property itself. The trustee has a right of indemnity out of the trust fund (i.e. assets of the TDT). The only way in which a creditor has access to the trust fund is if the trustee is unable to pay the claim and the creditor is able to be subrogated to the trustee’s claim for indemnity. Article 32 provides that where a trustee is a party to a transaction and the other party knows that the trustee is acting as trustee, any claim by the other party shall be against the trustee as trustee and shall only extend to the trust property. The applicability scope and interpretation of Article 32 in this case is therefore crucial to determining the recoverability of funds for the companies from the Former Trustees. 27. Possible outcomes of the Guernsey Proceedings are that the Companies have recourse to(1) the assets of the TDT

(2) the Former Trustees personally or

(3) both 1 and 2. The Joint Liquidators believe, based on legal advice received, that at a minimum they will have recourse to the assets of the TDT to try and recover some value from the loans.”

[10]Mr Trower points out that the Guernsey proceedings, although initiated by the debtors, are in essence loan recovery proceedings which have been on foot since very shortly after the appointment of the joint liquidators. He emphasises the extent of the shortfall for creditors, almost £2 billion, and that central to the prospect of recovery is the enforceability of intra-group lending. In that regards, he suggests, it is in the nature of this liquidation that it would be highly litigious, and that that is something which it should be accepted is likely to have been uppermost in the minds of the Joint Liquidators from the outset. Whilst Mr Trower understandably did not put it in this way, it would I consider be wrong to allow subsequent events to obscure that at any rate Mr Akers, from the outset, evidently approached his task upon the footing that there were matters worthy of investigation by the SFO. However, the point cuts both ways. The judge accepted the submission of Ms Phelps, who argued the case for the Claimants below, that the Joint Liquidators are not neutral third parties. Mr Trower was critical of this, but his submission in this regard is I think unrealistic. Of course the Joint Liquidators are to be regarded as having conscientiously discharged their duties to the creditors and to the court, but it would be equally wrong to ignore that Mr Akers has worn more than one hat and that both GT and, distinctly, the liquidators face possible claims arising out of their conduct. Ultimately, the significance of this lies, I think, in the heavy burden it imposes upon the Joint Liquidators in terms of disentangling their role from that of GT when seeking to make good the claim to litigation privilege.

The judge described the five reports, the subject of this application, in this way:

[11]- “35. The 5 Reports which are the subject of the present application are now described in paragraph 29 of Mr Verrill’s statement as follows: i) A draft report dated 23 August 2010 drafted in the context of proceedings brought in Guernsey against members of the Oscatello group of companies (“First Draft Guernsey Report”). ii) A draft report dated 21 December 2010, together with exhibits, considering the broader implications of the Guernsey Application for the Oscatello group of companies (“Second Draft Guernsey Report”). iii) A draft memorandum dated 17 September 2010 on the formation and trading of the Oscatello group of companies (“Draft Oscatello Memorandum”). iv) A draft report dated 25 October 2010, considering the circumstances surrounding the entry into certain contracts for difference and credit default swaps by Roxinda Limited a member of the Oscatello group of companies (“Draft Roxinda Memorandum”). v) A draft report dated 22 December 2010 considering the role and involvement of R20 and its employees and/or directors in the Oscatello structure and, in particular, their role in transactions entered into by the Oscatello group of companies (“Draft R20 Report”).” i) A draft report dated 23 August 2010 drafted in the context of proceedings brought in Guernsey against members of the Oscatello group of companies (“First Draft Guernsey Report”). ii) A draft report dated 21 December 2010, together with exhibits, considering the broader implications of the Guernsey Application for the Oscatello group of companies (“Second Draft Guernsey Report”). iii) A draft memorandum dated 17 September 2010 on the formation and trading of the Oscatello group of companies (“Draft Oscatello Memorandum”). iv) A draft report dated 25 October 2010, considering the circumstances surrounding the entry into certain contracts for difference and credit default swaps by Roxinda Limited a member of the Oscatello group of companies (“Draft Roxinda Memorandum”). v) A draft report dated 22 December 2010 considering the role and involvement of R20 and its employees and/or directors in the Oscatello structure and, in particular, their role in transactions entered into by the Oscatello group of companies (“Draft R20 Report”).”

[12]Although Mr Verrill’s witness statement must of course be read and considered as a whole, it is in paragraph 29 that he seeks to explain the basis upon which the Reports were commissioned. The judge set out this paragraph in extenso and so shall I:- “29. The reports commissioned by the Joint Liquidators include the Reports which form the subject of the VT Claimants’ Application. I summarise the content of each of the Reports below. I am providing, as noted above, this summary of the general subject matter of the Reports in order to assist the Court in determining whether litigation privilege attaches to them and in no manner is this intended to be a waiver or partial waiver of privilege in the Reports:(1) the Joint Liquidators commissioned a draft report dated 23 August 2010, in order to assist the Joint Liquidators in formulating their response to the Guernsey Proceedings and to enable their Guernsey solicitors to provide instructions to counsel (“the First Draft Guernsey Report”). The First Draft Guernsey Report was included in instructions sent to Guernsey counsel on 15 November 2010. The recovery available to Oscatello in the Guernsey Proceedings, put forward by Investec, was materially different depending on a number of scenarios. The First Draft Guernsey Report was prepared entirely to enable the Joint Liquidators and their legal advisors to respond to the varying scenarios and to prepare a Defence and Counterclaim quantifying the amounts claimed. Specifically it was to identify all inter-company balances that should be reversed and to calculate the effect of the these balances/reversals on dividends to creditors;

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

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

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

(5) Following a meeting with Counsel on 30 November 2010, the Joint Liquidators commissioned a draft memorandum dated 22 December 2010 providing details of the individuals from R20 who were involved in the transactions referred to in the Oscatello Report (“the Draft R20 Report”). The Draft R20 Report was commissioned to brief Counsel and in order to assist the Joint Liquidators in obtaining information and advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, the Draft R20 report was commissioned following a request from the Joint Liquidators’ Counsel to enable him to advise on potential claims against various possible defendants identified in the Oscatello Report. The purpose of this report was to supplement the Oscatello Report and to set out the evidence needed to demonstrate which individuals from R20 were potentially involved with irregular and unusual transactions. On or around 22 December 2010 the R20 Report was provided to counsel in London for the purposes of obtaining advice and formulating draft particulars of claim.” (1) the Joint Liquidators commissioned a draft report dated 23 August 2010, in order to assist the Joint Liquidators in formulating their response to the Guernsey Proceedings and to enable their Guernsey solicitors to provide instructions to counsel (“the First Draft Guernsey Report”). The First Draft Guernsey Report was included in instructions sent to Guernsey counsel on 15 November 2010. The recovery available to Oscatello in the Guernsey Proceedings, put forward by Investec, was materially different depending on a number of scenarios. The First Draft Guernsey Report was prepared entirely to enable the Joint Liquidators and their legal advisors to respond to the varying scenarios and to prepare a Defence and Counterclaim quantifying the amounts claimed. Specifically it was to identify all inter-company balances that should be reversed and to calculate the effect of the these balances/reversals on dividends to creditors; (2) the Joint Liquidators commissioned a draft report dated 21 December 2010, following a meeting with Counsel on 30 November 2010, the dominant purpose of which was to enable the Joint Liquidators to consider with Counsel the broader implications of the Guernsey Proceedings for the Oscatello Companies (“the Second Draft Guernsey Report”). In particular, the Second Draft Guernsey Report was produced following a request by the Joint Liquidators’ Guernsey counsel for a memorandum regarding the inter-company loans to assist Counsel in providing advice regarding litigation strategy. As stated in paragraph [26], the report was produced to help establish (a) how the original debts due from TFT arose, (b) whether these debts were properly described as loans, and if so, what the terms of the loans were, (c) the terms under which the debts due to Oscatello's subsidiary companies were novated to the TDT, as at 24 August 2007, and whether the debts were properly described as loans and if so, what the terms of the loans were, and (d) clarification as to the terms under which the debts due to Oscatello's subsidiaries were transferred from TDT to Oscatello as at 21 December 2007 and whether the debts were accurately described as loans, and if so, what the terms of the loans were. The report took the form of a summary and analysis of information obtained from the books and records of the Oscatello Companies. The report enabled the Joint Liquidators’ solicitors to fully understand the accounting treatment of the loan transactions to enable them to advise on strategy for the litigation proceedings in Guernsey. The Second Draft Guernsey report was sent to Guernsey counsel on or around 21 December 2010; (3) the Joint Liquidators commissioned a draft memorandum dated 17 September 2010 on the formation and trading history of the Oscatello Companies (“the Draft Oscatello Memorandum”). The Draft Oscatello Memorandum was commissioned for the dominant purpose of enabling the Joint Liquidators to obtain information and legal advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, it addresses, among other things, various transactions which the Joint Liquidators consider unusual or irregular and identifies potential causes of action as well as the defendants to possible claims. The memorandum was produced to assist the Joint Liquidators in assessing the potential claims against other parties by Oscatello, and its related subsidiaries. It highlighted unusual and irregular transactions, specifically the Framework and Overdraft agreements, the position of other lenders in the Oscatello Group, a number of share transactions and CDS transactions and breaches of covenants and the validity of Framework agreement. The report went on to highlight the potential defendants to any claim made in respect of the above findings, these potential defendants include parties to the SFO proceedings HQ12XO5082 and HQ13XO0414. On or around 17 September 2010 the Oscatello Report was provided to the Liquidators legal advisors in London for the purposes of obtaining advice and formulating draft particulars of claim; (4) the Joint Liquidators commissioned a draft memorandum dated 25 October 2010 considering the circumstances surrounding the entry into certain contracts for difference and credit default swaps by Roxinda Limited (“Roxinda”), a member of the Oscatello Companies (“the Draft Roxinda Memorandum”). The Draft Roxinda Memorandum was commissioned for the dominant purpose of assisting the Joint Liquidators in connection with obtaining information and legal advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, it addresses, among other things, the circumstances surrounding the entry into certain contracts for differences and credit default swaps by Roxinda, at a time when it is believed Roxinda was insolvent, it also seeks to identify civil recovery opportunities. On or around 22 September 2011 the Draft Roxinda Report was provided to counsel in London for the purposes of obtaining advice and formulating draft particulars of claim; and (5) Following a meeting with Counsel on 30 November 2010, the Joint Liquidators commissioned a draft memorandum dated 22 December 2010 providing details of the individuals from R20 who were involved in the transactions referred to in the Oscatello Report (“the Draft R20 Report”). The Draft R20 Report was commissioned to brief Counsel and in order to assist the Joint Liquidators in obtaining information and advice in connection with litigation which was, and remains, contemplated against various potential defendants. In particular, the Draft R20 report was commissioned following a request from the Joint Liquidators’ Counsel to enable him to advise on potential claims against various possible defendants identified in the Oscatello Report. The purpose of this report was to supplement the Oscatello Report and to set out the evidence needed to demonstrate which individuals from R20 were potentially involved with irregular and unusual transactions. On or around 22 December 2010 the R20 Report was provided to counsel in London for the purposes of obtaining advice and formulating draft particulars of claim.”

[13]There was no dispute either before the judge or before us as to the applicable principles. I summarise the manner in which the judge put it as paragraph 48 of his judgment. For a communication to be subject to litigation privilege it must have been made with the dominant purpose of being used in aid of or obtaining legal advice from a lawyer about actual or anticipated litigation: Thanki, The Law of Privilege (2nd ed) (“Thanki”) paragraph 3.68 ff and the cases there cited. Where litigation has not been commenced at the time of the communication, it has to be ‘reasonably in prospect’; this does not require the prospect of litigation to be greater than 50%, but it must be more than a mere possibility: United States of America v Philip Morris & British American Tobacco

[2004] EWCA Civ 330

at paragraphs 67-68; Westminster International v Dornoch Ltd

[2009] EWCA Civ 1323

at paragraphs 19-20 (Etherton LJ). The burden of proof is on the party claiming privilege to establish that the dominant purpose test is satisfied: West London Pipeline and Storage v Total UK [2008] 2 CL 259 paragraph 50, (Beatson J). A mere claim in evidence before the court that the document was for a particular purpose will not be decisive: Neilson v Laugharne

[1981] QB 736

, 645 (Lord Denning), 750 (Oliver LJ). The court will look at ‘purpose’ from an objective standpoint, looking at all relevant evidence including evidence of subjective purpose: Thanki paragraph 3.75 and the cases cited at footnotes 187 and 188. The evidence in support must be specific enough to show something of the deponent’s analysis of the purpose for which the documents were created, and should refer to such contemporary material as is possible without disclosing the privileged material: West London Pipeline and Storage v Total UK at paragraph 53 (Beatson J).

[14]To this summary of the principles I would add a reference to the speech of Lord Carswell in Three Rivers District Council and Others v Governor and Company of the Bank of England(6)

[2005] 1 AC 610

at 675:- “The conclusion to be drawn from the trilogy of nineteenth century cases to which I have referred and the qualifications expressed in the modern case-law is that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:(a) litigation must be in progress or in contemplation;

(b) the communications must have been made for the sole or dominant purpose of conducting that litigation;

(c) the litigation must be adversarial, not investigative or inquisitorial.” I particularly note the emphasis on the conduct of the litigation as the dominant purpose which must be identified.

[15]The judge was I think right to emphasise, at paragraph 53 of his judgment, “that the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found the claim for litigation privilege. It is only if such purpose is one which can properly be characterised as the “dominant purpose” that such claim for litigation privilege can properly be sustained”. It was the identification of dominant purpose which here presented the biggest challenge, since plainly the first duty of the liquidators was to obtain information simply to establish what if any assets or liabilities existed and what if any steps were open to the liquidators to collect in the assets or to reduce or discharge the liabilities.

[16]It was suggested that the judge misunderstood or placed undue emphasis upon the following passage from the judgment of Millett J in Price Waterhouse v BCCI Holdings (Luxembourg) SA

[1992] BCLC 583

which the judge reproduced at paragraph 54 of his judgment:- “The board of BCCI, the auditors, and the regulatory authorities all needed to know what was the true financial position of BCCI, and this required an investigation in order to establish the facts. If BCCI itself or its controlling shareholders did not set an investigation in motion, it was feared that the regulatory authorities would. BCCI's financial position depended, in part at least, on the recoverability of the problem loans and that might require legal advice as to the prospects of success if resort had to be made to legal proceedings. But just as in Waugh v British Railways Board the board needed to establish the facts whether or not litigation ensued, so the board of BCCI, the auditors and the controlling shareholders needed to establish BCCI's financial position whether or not recovery proceedings were necessary. Given that the dominant purpose of the investigation was to establish the facts necessary to enable BCCI's financial position to be determined, documents brought into existence in the course of the investigation did not in my judgment attract legal professional privilege merely because legal advice might be necessary in order fully to evaluate the financial implications of the facts. The obtaining of legal advice is not an end in itself. To attract privilege it must be for the purpose of actual or contemplated proceedings. In Re Highgrade Traders Ltd a claim to privilege was raised in respect of reports obtained by insurers who were suspicious of the circumstances attending a fire on the premises of their insured. Oliver LJ said (

[1984] BCLC 151

at 173):

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

In the present case it was necessary to determine the extent to which the problem loans were recoverable, in order to establish BCCI's financial position and to decide whether recovery proceedings should be taken. But the two purpose were quite independent of each other. There was nothing of merely academic interest in the former; it was of vital concern not only to BCCI, but also to the controlling shareholders, the auditors, and the regulatory authorities. I am satisfied that this was the dominant purpose of the investigation, and was quite independent of the possible need to take recovery proceedings, and that accordingly the documents in question do not attract legal professional privilege.” (emphasis added) 'What, then, was the purpose of the reports? The learned judge found a duality of purpose because, he said, the insurers wanted not only to obtain the advice of their solicitors, but also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite inseparable. The insurers were not seeking the cause of the fire as a matter of academic interest in spontaneous combustion. Their purpose in instigating the inquiries can only be determined by asking why they needed to find out the cause of the fire. And the only reason that can be ascribed to them is that of ascertaining whether, as they suspected, it had been fraudulently started by the insured. It was entirely clear that, if the claim was persisted in and if it was resisted, litigation would inevitably follow.'

[17]At paragraph 55 of his judgment the judge said of this passage:- “This passage is, in my view, important because it illustrates the relatively high threshold imposed by the “dominant purpose” test; and serves to emphasise that if, for example, documents are produced to determine the extent to which “problem loans” are recoverable in order to establish the financial position of a company, such exercise is quite independent of the possible need to take recovery proceedings and will not (at least on that basis) attract litigation privilege. However, I fully recognise that each case must turn on its own facts, the essential question in each case being whether, with regard to particular documents or classes of documents, the party claiming the privilege can satisfy the “dominant purpose” test. ”

[18]I would agree that if the first sentence of paragraph 55 stood alone, it would be possible to suggest that the judge had mischaracterised the proper approach in that an exercise to establish the financial position of a company need not necessarily be quite independent of the possible need to take recovery proceedings. In the Price Waterhouse case, as Millett J found at page 590a in a passage just before that cited by the judge, the investigation was established on the recommendation of Price Waterhouse as the auditor of BCCI. The primary concern was to establish the amount of the possible losses which had resulted from the problem loans, in order to enable proper provision to be made for them in the 1990 accounts, and to quantify the amount of further financial support which was required from the controlling shareholders. A further, though possibly subsidiary, purpose was to ascertain whether the conditions under which the promised support would be forthcoming (i.e. that there had been no fraud or other impropriety) were satisfied. Another, and certainly subsidiary purpose, was to recommend improvements in management control. I agree with Mr Trower that the role of the Joint Liquidators was here very different from the role of the auditors to BCCI. Furthermore, it is manifest that uppermost in the minds of both the auditors and the Board of BCCI was the need to establish the extent of losses so as to permit proper provisions to be made and to quantify the extent of further financial support required. That was the dominant purpose of the investigation. However, I do not think that Eder J lost sight of the need in every case to identify the dominant purpose, as the second sentence of paragraph 55 of his judgment demonstrates.

[19]The essential reasoning of the judge is to be found at paragraphs 57-63 which I cannot avoid reproducing in full:- “First Draft Guernsey Report 57. This draft Report is dealt with in paragraph 29(1) of Mr Verrill’s statement. The first thing to note is that the date referred to is the date of the Report itself; Mr Verrill does not state when this report was “commissioned” although it would seem that the Report must have been prepared after the commencement of the Guernsey Proceedings. However, Mr Verrill does not in terms say explicitly that this document was produced for the dominant purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of, such litigation. Rather what he says in relevant respect is that the Report was “commissioned” in order to “assist” the Joint Liquidators in formulating their response to the Guernsey Proceedings; that the recovery available to Oscatello was materially different depending on a number of scenarios; and that it was prepared “entirely” to enable the Joint Liquidators and their legal advisors to respond to varying scenarios and to prepare a Defence and Counterclaim. I recognise that the last reference comes closest to satisfying the dominant purpose test. However, the reference to responding to “varying scenarios” is somewhat equivocal; and the use of the conjunctive “and” suggests a dual purpose i.e. the Report was prepared for the purpose of responding to the varying scenarios and preparing a Defence and Counterclaim. Moreover, the final sentence of this paragraph then goes on to state:

“Specifically [this Report] was to identify all inter-company balances that should be reversed and to calculate the effect of these balances/reversals on dividends to creditors”

. To my mind, it is difficult if not impossible to understand how this last sentence fits in with the earlier part of this sub-paragraph. Further, if that last sentence is correct, it seems to me that such exercise is one which the Joint Liquidators were bound to carry out in any event and, echoing the words of Millett J in Price Waterhouse v BCCI, it is an exercise which would be “independent” of the possible need to take recovery proceedings. On that basis, I am not satisfied that the dominant purpose test is satisfied in respect of this draft Report. Finally, I do not consider that the fact the Report was subsequently sent to Guernsey counsel on 15 November 2010 changes the position. Not only is this almost 3 months after the date of the Report but such fact cannot have the effect of creating litigation privilege if such privilege did not exist when the Report was originally produced. Second Draft Guernsey Report 58. This draft Report is dealt with in paragraph 29(2) of Mr Verrill’s statement. Again, I note that he does not state when it was “commissioned” although he does say that it was commissioned following a meeting with Counsel on 30 November 2010; and it must have been produced shortly thereafter because Mr Verrill states that it was sent to Guernsey counsel on or around 21 December 2010. Thus, the report was plainly prepared after the commencement of the Guernsey Proceedings. Here, Mr Verrill’s language is different from what he says in relation to the First Draft Guernsey Report. In particular, he states explicitly that this Report was commissioned for the “dominant purpose … to enable the Joint Liquidators to consider with Counsel the broader implications of the Guernsey Proceedings for the Oscatello Companies.” Even this, however, is somewhat vague. What, might one ask, are the “broader implications” here referred to? If this is intended to refer to the financial consequences of the various possible outcomes of the Guernsey Proceedings then I am extremely doubtful that this would give rise to litigation privilege. Mr Verrill then states that this draft Report was produced “... following a request by the Joint Liquidators counsel for a memorandum regarding the inter-company loans to assist Counsel in producing advice regarding litigation strategy.” Mr Verrill then goes on to explain in some detail that the draft Report was produced to “help establish” certain matters; and took the form of “… a summary and analysis of information obtained from the books and records of the Oscatello Companies”. I am prepared to accept that the production of this summary and analysis of Oscatello’s books and records was important even perhaps essential for the purpose of deciding litigation strategy in the Guernsey Proceedings. However, it seems to me that it does not necessarily follow that this satisfies the “dominant purpose” test. Again, it seems to me that the last sentence of this paragraph in Mr Verrill’s statement is important:

“The report enabled the Joint Liquidators’ solicitors to fully understand the accounting treatment of the loan transactions to enable them to advise on strategy for the litigation proceedings in Guernsey.”

If, as this sentence would appear to suggest, such draft Report was necessary in order for the Joint Liquidators’ solicitors to understand the accounting treatment of the loan transactions, then it seems to me difficult to see how the dominant purpose test is satisfied even if, as Mr Verrill also states, this was to enable the solicitors to advise on strategy for the litigation. If such document did not exist already, it also seems to me difficult to understand how the Joint Liquidators could perform their basic statutory duties. For all these reasons, I am not satisfied that the dominant purpose test is satisfied in respect of this draft Report. Draft Oscatello Memorandum 59.This draft Memorandum is dealt with in paragraph 29(3) of Mr Verrill’s statement. It is important to note that the explanation given as to the purpose for which it was produced is very different from either of the first two draft reports viz it has nothing to do with the Guernsey Proceedings nor any other then existing proceedings. Rather, Mr Verrill states that it was commissioned “… on the formation and trading history of the Oscatello Companies”. Again, although Mr Verrill gives the date of the draft Memorandum, it is noteworthy that he does not state the date when it was actually “commissioned”. He then goes on to state that it was commissioned for the dominant purpose of enabling the Joint Liquidators “… to obtain information and advice in connection with litigation which was, and remains, contemplated against various potential defendants”. Although the magic words “dominant purpose” are used, it seems to me significant that there were no relevant extant proceedings at that stage and although he does indeed say that litigation “… was, and remains contemplated …”, such statement is, to my mind, entirely vague and lacks specificity. For example, Mr Verrill states that such litigation was and remains contemplated “… against potential defendants…” but does not specify who such potential defendants might be. On the contrary, Mr Verrill goes on to state that the draft Memorandum addresses, among other things, various transactions which the Joint Liquidators consider unusual or irregular and “… identifies potential causes of action as well as the defendants to possible claims” (emphasis added). Although it is true that Mr Verrill then states that the draft Memorandum highlighted a number of what are said to be “unusual and irregular” specific transactions and potential defendants, such language – in particular the reference to “potential” causes of action and “possible claims” – seems to me to fall far short of the necessary threshold as referred to in the cases cited above i.e. United States of America v Philip Morris & British American Tobacco

[2004] EWCA Civ 330

at paras 67-68; Westminster International v Dornoch Ltd

[2009] EWCA Civ 1323

at paras [19] – [20] (Etherton LJ). Mr Trower emphasised that the fact that this draft Memorandum was, as stated by Mr Verrill, provided to the Joint Liquidators’ legal advisors in London for the purpose of obtaining advice and formulating draft particulars of claim on 17 September (i.e. on the same date of the draft Memorandum) supports the claim for litigation privilege. In broad terms, that may well be so. However, it seems to me that the critical question is what was the purpose for which the draft Memorandum was originally produced rather than its actual use. For that reason, the fact that the draft Memorandum was provided to the Joint Liquidators’ legal advisors is not, in my view, determinative. Moreover, it seems to me plain and obvious that the fact that the draft Memorandum was provided to the legal advisors does not mean that litigation was “reasonably in prospect” rather than a mere possibility at that stage (if that is the relevant stage). In that context, Ms Phelps relied on the fact that even now – almost 3 years after the date of the first Report – no proceedings have been initiated. I do not consider that such fact is necessarily determinative; but I agree that it points strongly against any suggestion that litigation was reasonably in prospect when this draft Memorandum was produced. 60. For all these reasons, I am not satisfied that the dominant purpose test is satisfied in respect of this draft Report. Draft Roxinda Memorandum 61. This draft Memorandum is dealt with in paragraph 29(4) of Mr Verrill’s statement. Although Mr Verrill again uses the magic words – “dominant purpose” – I would make similar comments to those in respect of the draft Oscatello Memorandum which I have just set out above and need not repeat. It is true that although Mr Verrill explains that this draft Memorandum addresses the circumstances surrounding the entry into certain contracts and also seeks to identify what are described as “civil recovery opportunities”, it seems to me that this language again falls short of the necessary threshold of litigation having to be reasonably in prospect. Further, I should note that Ms Phelps relied on the fact that, according to Mr Verrill, although this Memorandum is dated 25 October 2010, it was not provided to counsel in London until almost a year later i.e. 22 September 2011; and I agree that this further supports the conclusion which I have reached i.e. that the dominant purpose test is not satisfied in respect of this draft Memorandum. Draft R20 Report 62. This draft Report is dealt with in paragraph 29(5) of Mr Verrill’s statement. I originally considered that the explanation provided there by Mr Verrill in relation to the production of this draft Report set out the strongest case for litigation privilege. In particular, it is noteworthy that Mr Verrill’s evidence is that such draft Report was commissioned at a later stage i.e. following a meeting (on 30 November 2010) with - and a specific request by - the Joint Liquidators’ counsel for a document providing details of the individuals from R20 who were involved in the transactions referred to in the Oscatello Report (which I understand to refer to the Draft Oscatello Memorandum); and it was provided shortly thereafter on 22 December 2010 to counsel “… for the purposes of obtaining advice and formulating draft particulars of claim”. However, again, it seems to me that Mr Verrill’s statement falls short of establishing that there was even at this stage any relevant litigation which was “reasonably in prospect” as opposed to a mere possibility. Thus, Mr Verrill states that this draft Report was commissioned “… to enable [Counsel] to advise on potential claims against various possible defendants identified in the Oscatello Report …” (emphasis added). Again, it seems to me that this conclusion is fortified by the fact, as submitted by Ms Phelps, that even now (i.e. some 2½ years later), no litigation has been instituted. 63. For all these reasons, it is my conclusion that the dominant purpose test has not been satisfied in respect of this draft Report.” Second Draft Guernsey Report Draft Oscatello Memorandum Draft Roxinda Memorandum

Draft R20 Report

[20]Although we are in as good a position as was the judge to reach a conclusion on the question whether the dominant purpose test was in each case satisfied, I need hardly point out that this court will hesitate long before interfering with a careful assessment of this nature by a judge experienced in the relevant field, who has correctly directed himself as to the applicable legal principles.

[21]I agree with Mr Trower that the judge appears to have overlooked that there was in Mr Verrill’s witness statement, in paragraphs other than paragraph 29, several assertions to the effect that all the reports had been produced at the request and instruction of the Joint Liquidators for the dominant purpose of obtaining information to be provided to the Joint Liquidators’ legal advisors to obtain advice in connection with litigation which, in certain cases, had been commenced and, in other cases, was and remains actively contemplated by the Joint Liquidators – see for example paragraph 7. At paragraph 8 of Mr Verrill’s witness statement the reports are said to have been commissioned for the dominant purpose of use in litigation. This criticism of the judgment does not however take Mr Trower very far, and in fairness he did not suggest that it did.

[22]A more substantial criticism is that at paragraph 57 the judge appears to suggest that if the purpose of commissioning a report was to conduct an exercise which the liquidators were bound to carry out in any event, irrespective of whether litigation was pending or in contemplation, then such a purpose would necessarily be independent of the possible need to take recovery proceedings. I suspect that the judge may here be guilty of over-compression in expression. He was however only “echoing” the words of Millett J, not applying them, no doubt because Millett J did not put forward such a proposition but rather concluded that the two purposes there potentially in play were independent of each other. I agree with Mr Trower that in the minds of the Joint Liquidators it would by no means necessarily be the case that identification of intra-company balances which should be reversed would be independent of the possible or even the contemplated need to take recovery proceedings. The real difficulty however for Mr Trower, and what informs everything which Eder J says in this paragraph, is that in circumstances which call for clarity and precision, for the reasons already discussed, Mr Verrill made no effort to grapple with the obvious need to establish which of dual or even multiple purposes was dominant if a plausible claim to privilege was to be made out. Thus in the penultimate sentence of paragraph 29(1) Mr Verrill proffers two purposes, the first of which is vague and the second of which is on the face of it independent of the first, although it need not necessarily be so. The final sentence puts forward something which is on the face of it a different purpose, much more narrow than to inform response to “varying scenarios”, and which, whilst it might embrace use in the conduct of contemplated litigation, need not necessarily do so. Looked at in the round, the judge’s assessment concerning the first Draft Guernsey Report is as it seems to me unimpeachable.

[23]The same is true of the second Draft Guernsey Report. Mr Trower’s principal complaint here is that the judge wrongly concluded that the process of understanding the accounting treatment of the loan transactions was independent of the formulation of litigation strategy. It is true that the judge expressed difficulty in understanding how the dominant purpose could be satisfied if there were two purposes of this nature. I would agree with Mr Trower that the two purposes are not necessarily independent of each other, but his difficulty is again that it was incumbent on Mr Verrill to demonstrate that they were not independent of each other, and that the dominant purpose was for use in the conduct of litigation. In that regard Mr Verrill needed to bear in mind that by their letter of 26 March 2013 Chadbourne and Parke had said of this report:- “A draft report dated 21 December 2010, together with exhibits, considering the broader implications of the Guernsey Application for the Oscatello group of companies. . . . The Second Guernsey Report was prepared by Grant Thornton on behalf of the Joint Liquidators to assist them in obtaining strategic advice in the context of the Guernsey Application.” The second sentence of this passage comes nowhere near establishing a claim to litigation privilege. Repetition of the “broader implications” formula in Mr Verrill’s witness statement is completely inimical to a conclusion that Mr Verrill has properly identified as dominant the purpose of use in the conduct of proceedings, actual or contemplated.

[24]The real thrust of Mr Trower’s criticism so far as concerns the Oscatello Memorandum is that the judge overlooked the essentially litigious nature of these liquidations. It is, he suggested, a feature of such a liquidation that litigation is an obvious possibility and thus a real prospect. Mr Hollander in riposte suggested that it cannot be right even with liquidations of this nature to assume that everything that a liquidator does is in contemplation of litigation. I agree with Mr Hollander. Moreover in the United States of America v Philip Morris case at first instance, Moore-Bick J, as my Lord then was, said:- “The requirement that litigation be “reasonably in prospect” is not in my view satisfied unless the party seeking to claim privilege can show that he was aware of circumstances which render litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility.” The Court of Appeal rejected a submission that this set the hurdle too high. Even bearing in mind the realities of these liquidations which supply the context for Mr Verrill’s witness statement, I agree with the judge that the language of “[identifying] potential causes of action as well as the defendants to possible claims” falls short of the necessary threshold.

[25]The features of the Draft Roxinda Memorandum which in my view cried out for explanation were that:- i) although dated 25 October 2010, it was not supplied to Counsel in London for the purpose of obtaining advice and formulating draft Particulars of Claim until “around” 22 September 2011, i.e. very nearly one year later; and ii) no proceedings have yet emerged. Neither of these points is conclusive but the failure to deal with them deprives the claim to privilege of plausibility. Mr Trower was inclined to suggest that the judge’s apostrophising of the expression “civil recovery opportunities” represented an implied rejection of its relevance, but on reflection it seems to me that the judge in fact identified the purpose of seeking to identify such opportunities as telling in favour of the claim to privilege, as indeed I think it in principle does. I agree however with the judge that overall the explanation of the circumstances in which this Report was commissioned falls short of what is required in order to sustain the claim.

[26]Like the judge I consider on reflection that the description of the circumstances in which the Draft R20 Report was commissioned sets out the strongest case for litigation privilege. In particular, I note that it was commissioned following an express request from counsel to enable them to advise on potential claims against various possible Defendants identified in the Oscatello Report. I would not therefore be as critical as, impliedly, was the judge over the use of the word “possible” bearing in mind that there had been a positive identification of the relevant individuals in the Oscatello Report. There is also I consider some force in Mr Trower’s rhetorical question for what purpose could this report be said to have been commissioned other than for use in the conduct of litigation. However, that is not quite the right question since the relevant litigation needed to have been reasonably in prospect. In that regard Mr Verrill again needed to deal with the circumstance that in the more than two and a half years elapsed since production of the Report no proceedings had been begun. There is in my view no basis on which we could legitimately differ from the judge’s assessment that even in this case the dominant purpose test has not been satisfied.

[27]I would dismiss this appeal.

Lord Justice Ryder :

[28]I agree.

Lord Justice Moore-Bick :

[29]I also agree.