JSC BTA Bank v Solodchenko & Ors [2011] EWHC 2163 (Ch)

Case No HC10C02462

[2011] EWHC 2163 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

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

Date 05/08/2011

Before

MR JUSTICE HENDERSON

Between

(1) ROMAN SOLODCHENKODefendants

CLYDE & CO LLPRespondent

Mr Philip Marshall QC and Mr Caley Wright (instructed by Hogan Lovells International LLP) for Claimant/Applicant

Mr Tim Owen QC and Mr Ian Smith (instructed by Clyde & Co LLP) for Respondent

Hearing Hearing date: 15 July 2011

Judgment

Introduction and background

[1]On 15 July 2011 I heard argument for a full day on an application by the claimant, JSC BTA Bank (“the Bank”), for disclosure of information and documents against Clyde & Co LLP (“Clydes”) in their capacity as the solicitors on the record acting for the fourteenth defendant, Mr Syrym Shalabayev. 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. I therefore decided to reserve my judgment, despite the Bank’s understandable wish to have the application decided as soon as possible. I am grateful for the assistance which I have received from counsel on both sides, Mr Philip Marshall QC leading Mr Caley Wright for the Bank and Mr Tim Owen QC leading Mr Ian Smith for Clydes.

[2]The application is made in the action proceeding in the Chancery Division (“the AAA action”) in which the Bank seeks to trace and recover the proceeds of AAA-rated investment bonds with a nominal value of $290 million which it alleges were fraudulently misappropriated by the eighteenth defendant, Mr Ablyazov, the former chairman and owner of the Bank, and a number of other conspirators. Mr Shalabayev is Mr Ablyazov’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 Mr Ablyazov’s behalf.

[3]I will not say any more in this judgment about the wider background to the AAA action and the related claims against Mr Ablyazov and others which are proceeding in the Commercial Court. A brief description of the background to the AAA action and the appointment of receivers over Mr Ablyazov’s assets may be found in a judgment which I handed down on 5 April 2011 on an application to cross-examine the seventeenth defendant, Mr Anatoly Ereshchenko: see JSC BTA Bank v Solodchenko and others

[2011] EWHC 843 (Ch)

at [3] to [11]. I will only add that it is still the case, as it was in April, that none of the defendants to the AAA action has yet advanced any positive case that the transactions involving the AAA investments were commercially justified or otherwise legitimate.

[4]The relevant history, so far as Mr Shalabayev is concerned, is helpfully set out in the skeleton argument of counsel for the Bank and may be summarised as follows:(1) On 3 November 2010 I granted a worldwide freezing order against Mr Shalabayev 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. The application for the freezing order was made, in the usual way, without notice to Mr Shalabayev or the other respondents, but with a return date in the near future. No application to vary or set aside the freezing order has been made, and it remains in full force and effect against Mr Shalabayev.

(2) On 5 November 2010 the order was served personally on Mr Shalabayev at a hotel in Limassol, Cyprus, together with a letter from the Bank’s solicitors which specifically drew his attention to the disclosure obligations in the freezing order, warned him of the consequences of non-compliance and encouraged him to obtain legal advice. Mr Shalabayev then disappeared, and all subsequent efforts by the Bank to locate him have been fruitless. Despite the personal service of the order, Mr Shalabayev has made no effort to comply with any of its provisions, and the only reasonable inference to draw is that he has been a fugitive from British justice since that date. It is most unlikely that he is anywhere within the jurisdiction.

(3) It became apparent from other disclosure obtained by the Bank that Mr Shalabayev was using proxy servers to obtain access to, and to operate, various email accounts for the purpose of giving instructions to corporate service providers in relation to companies that the Bank contends are owned and controlled by Mr Ablyazov.

(4) On 13 December 2010 the Bank issued committal proceedings against Mr Shalabayev. In view of its continuing inability to locate Mr Shalabayev, and the information obtained about his use of email addresses, the Bank sought permission to serve the committal proceedings on him by an alternative method, namely by email. On 14 April 2011 Peter Smith J granted permission to serve by this method, and service was duly effected on the following day.

(5) Mr Shalabayev did not respond to the Bank’s committal application, and on 17 May 2011 Briggs J held that he was in contempt of court. In paragraph [15] of the judgment which he delivered on that occasion, Briggs J said this:

“In my judgment, applying for this purpose the criminal standard of proof, the alleged contempt is proved beyond reasonable doubt. The evidence clearly demonstrates both personal service of the freezing order, endorsed with the appropriate penal notice, together with a covering letter warning of the consequences of breach, and proves the complete failure by Mr Shalabayev, without explanation or excuse, to provide the disclosure ordered, either in time or at all. The contempt is both serious and continuing. It is particularly serious because, on the evidence before the court, Mr Shalabayev played a central role in the concealment of the proceeds of the realisation of the Bank’s assets and may be supposed to be likely to have disclosable information of the highest value to the Bank in tracing its property. Self-incrimination privilege has not, of course, been invoked by Mr Shalabayev.”

Briggs J decided to adjourn the question of sentence, and issued a bench warrant to secure Mr Shalabayev’s attendance at the adjourned hearing. (6) Shortly before the adjourned hearing on 20 June 2011, Clydes, on instructions from Mr Shalabayev, contacted the Bank to seek a further adjournment. (7) On 17 June the Bank issued the present application for disclosure against Clydes, seeking disclosure of his contact details and assets in the terms of a draft order attached to the application notice. (8) On 20 June 2011 Briggs J granted an adjournment of the sentencing hearing for one week, and gave directions for the filing of evidence in the present application which he directed to be heard on the first available date after 4 July with a time estimate of half to one day. (9) Despite securing the further adjournment, Mr Shalabayev still persisted in his refusal to comply with the disclosure obligations in the freezing order. He also failed to appear in person at the adjourned hearing on 27 June, although he was represented by Clydes and junior counsel (Mr Ian Smith). Briggs J then proceeded to sentence him, in his absence, to two concurrent terms of 18 months’ imprisonment, and one concurrent term of six months, for his failure to comply with (respectively) paragraphs 9, 10 and 11 of the freezing order. Briggs J also ordered Mr Shalabayev to pay the Bank’s costs of the committal proceedings on the indemnity basis, with a payment on account of £70,000 to be made by 4 pm on 11 July 2011. (10) Mr Shalabayev failed to pay any part of the £70,000 before the stipulated deadline, and remained in default at the date of the hearing before me on 15 July.

[5]In the ruling which he gave on 27 June, Briggs J quoted from paragraph 15 of his judgment of 17 May and continued as follows:

“That conclusion, namely as to the vital nature of the information which Mr Shalabayev should have provided pursuant to the freezing order, arises in particular from the fact that Mr Shalabayev was one of four holders of a power of attorney in relation to a number of offshore corporations, most of them in the BVI, one of them in the Seychelles, which the claimants claim have been used to launder its assets. The upper limit in the freezing order is some £200 million. Some of the documents which have been obtained by the claimants, in part from searching emails coming to and from Mr Shalabayev, pursuant to an earlier order of the court, in part from the execution of [a search] order, and in part from the Land Registry, show Mr Shalabayev as being described as the ultimate beneficial owner of some of those offshore companies, whether or not that is true. They also show him giving instructions and taking a part in the administration of those companies’ ostensible assets, which suggests that the [claimants] need the valuable information to find out what has become of their property, not merely pursuant to compliance by Mr Shalabayev with paragraph 10 of the freezing order in answering the questions raised, but also by providing information as to the whereabouts of his assets, bearing in mind the great breadth of the definition of his assets in paragraph 6 of the order … Since my finding of contempt has been communicated to Mr Shalabayev, he has on two subsequent occasions, including this morning, sought to seek an adjournment of the sentencing hearing, without success today but with the obtaining of a seven day adjournment when he made a similar application last week. He is quite plainly aware both of the freezing order, of which there is evidence of personal service, and indeed of the judgment that he is in contempt, although it appears from the instructions which his counsel Mr Ian Smith described as having been given to him this morning that he does not even now appear to accept that he is in contempt in relation to the order. This is an extremely serious case in which Mr Shalabayev has not only made no attempt whatsoever to comply with the freezing order, he has not made any admission of being in breach; he has not attended court, despite having more than sufficient time in which to do so; and he has not put evidence in in mitigation of his contempt, relying upon what I have already described earlier this morning as the unpersuasive excuse that he fears that he may be personally mistreated if he comes to this jurisdiction to attend to give evidence and be cross-examined. … This is as clear a case of a continuing breach of the freezing order as it would be possible to imagine.”

[6]It will be clear from the above narrative that Mr Shalabayev has been found guilty of grave and continuing contempts of court in relation to his disclosure obligations in the freezing order, and has been sentenced in his absence to 18 months’ imprisonment in respect thereof. He has not yet been apprehended, and is most unlikely to be anywhere in the jurisdiction. Nor has he paid a penny of the £70,000 interim costs order made against him on 27 June. However, Clydes act on his behalf, and are evidently able to communicate with him. Furthermore, Clydes can and do make applications on his instructions when it suits him to do so. That is the context in which the Bank now seeks disclosure from Clydes.

[7]The disclosure sought from Clydes was formulated in the draft order annexed to the application notice of 17 June under the following headings:(a) all historic and current contact details (including, but without limitation, postal and email addresses and all telephone numbers) which Clydes hold for Mr Shalabayev;

(b) all information within Clydes’ knowledge or reasonable belief which was required to be provided under paragraph 9 of the freezing order made against Mr Shalabayev on 3 November 2010; and

(c) full details of any monies, any account (including bank, branch, account name, account number and sort code) or any other asset of Mr Shalabayev used for paying fees and disbursements of Clydes in respect of any matter. The draft order asked for the information under heading (a) to be provided to the Bank’s solicitors and the Tipstaff, and for the information under headings (b) and (c) to be set out in a witness statement exhibiting all documentation in Clydes’ possession, custody or control evidencing the specified matters. The three headings thus concern, in summary: (a) contact details; (b) asset disclosure under the freezing order; and (c) asset disclosure relating to the payment of Clydes’ legal costs. It will be noted that the relief sought under heading (c), as originally formulated, was confined to assets of Mr Shalabayev’s, although it extended to the legal costs of Clydes “in respect of any matter”.

The representation of Mr Shalabayev by Clydes

[8]The partner in Clydes with conduct of the matter on behalf of Mr Shalabayev has at all material times been Julian Paul Connerty. He explains that Clydes were first instructed by Mr Ablyazov and a number of individuals and companies associated with him in about February 2009. Those individuals included Mr Shalabayev, and before accepting him as a client Clydes carried out the checks set out in the Money Laundering Regulations 2007. Mr Connerty does not say specifically what matters Mr Shalabayev sought advice upon, but he describes in general terms what sort of advice was sought by Mr Ablyazov and his associates. It included advice about the possibility of freezing orders and search and seizure orders being granted against them, and against individuals and companies associated with them, in the UK, and advice prompted by concerns that they might be made parties to proceedings arising out of the alleged fraud on the Bank, as well as advice of a non-contentious nature relating to matters such as employment, immigration and company or commercial issues that had no direct connection with the alleged fraud.

[9]At an early stage of Clydes’ retainer, before the present litigation began in August 2009, the firm received “a very large volume of documentation” from a number of different sources, including from clients such as Mr Ablyazov, Mr Solodchenko and Mr Shalabayev who subsequently became defendants. Some of these documents already existed, but others were prepared for the purpose of obtaining legal advice and/or in contemplation of litigation. Clydes also received some material from third parties who did not seek advice from them, but were willing to provide the material to assist Clydes in advising their clients.

[10]When the Bank began its first set of proceedings against Mr Ablyazov and others in August 2009 (generally referred to as “the Drey proceedings”), Clydes acted for Mr Ablyazov, Mr Solodchenko and Mr Zharimbetov, as well as Drey Associates Limited (“Drey”). Mr Shalabayev was not a defendant to the Drey proceedings. Nor was he initially a party to the AAA action. He was only joined as a defendant when the freezing order against him was made on 3 November 2010. Meanwhile, however, Clydes had ceased to act for the protagonists in the Drey proceedings. Drey terminated its retainer of Clydes shortly after the commencement of the proceedings, and in or around March 2010 Mr Ablyazov, Mr Solodchenko and Mr Zharimbetov followed suit, becoming clients of Stephenson Harwood. Clydes then transferred their master set of files containing all relevant material to Stephenson Harwood, and in July 2010 a further set of the files was given directly to the clients themselves, represented for this purpose by associates of Mr Ablyazov.

[11]In his third statement dated 27 June 2011, Mr Connerty says that although Clydes began acting for Mr Shalabayev in around February 2009, they have had only intermittent contact with him since about March 2010. Before that date Clydes were asked to return to Mr Shalabayev any hard copy documents that they had received from him in relation to the BTA litigation, and to delete any electronic copies from their systems, which they then did. Mr Connerty continues:

“I cannot say with complete certainty that we have not retained any relevant documents; it may be for example that our email servers will have copies of emails to or from Mr Shalabayev that contain such information, or have annexed to them documents that contain such information. (Such communications would of course prima facie be privileged). It may be that the hard drives of our document management systems will have retained copies of documents received from Mr Shalabayev, or prepared for him; and there may be copies of such documents stored in the document archives where records of old cases are kept. To search for such documents would be a very onerous and time consuming exercise.”

[12]Although Mr Shalabayev asked for his documents to be returned or deleted prior to March 2010, he did not formally terminate his retainer of Clydes. Mr Connerty does not explain the nature of the “intermittent contact” which Clydes then had with Mr Shalabayev between March 2010 and June 2011, when he instructed them to seek an adjournment of the committal proceedings. No doubt because their retainer had not been terminated, Clydes did not consider it necessary to carry out any further checks of a “know your client” nature, although they did not, and as far as I am aware still do not, know where Mr Shalabayev is to be found. As Mr Connerty says in his third statement:

“6. … The fact that I do not know Mr Shalabayev’s current whereabouts is irrelevant. I am required in certain circumstances to identify and verify the identity of a client before I enter into a business relationship with him. This I have done. I know who my client is; I just do not know where he is. 7. For the sake of clarity, I should say that I have contact details, both mobile phone numbers and email addresses, for Mr Shalabayev (although he has instructed me to keep those in strict confidence). I am able to contact him (albeit not always very easily) and he is able to contact me. I can advise him, and take instructions from him. I consider I am able to discharge my professional duties to Mr Shalabayev as to any other client. … 9. … As I have said in correspondence with Hogan Lovells, I do not know where Mr Shalabayev is. As far as I am aware, he is not in the UK.”

[13]In his fifth statement dated 8 July 2011 Mr Connerty adds a little more detail about the return and deletion of Mr Shalabayev’s documents, and the question whether his contact details would enable him to be located:

“10. As I explain, we received copy documents (not originals) in electronic form from clients and third parties for the purposes of giving advice. We stored those electronic copies on our own system (in effect making additional electronic copies of them). We also printed off hard copies. When asked to do so, we returned the electronic copies, handed over the hard copies, and removed from our system the additional electronic copies we had made. There were by that stage more copies in existence than there had been when we received them. I do not accept that this amounts to an admission that we “destroyed” documents. … 12. … Mr Hardman [of Hogan Lovells] says the contact details we have for Mr Shalabayev may allow him to be tracked down. As I have said, we have email addresses and mobile phone numbers for Mr Shalabayev. Not all of these are current. I do not think they would assist in locating Mr Shalabayev. In any event, I have been told by my client to keep them in strict confidence as he fears for the safety of himself and his family.”

Should Clydes be ordered to disclose Mr Shalabayev’s contact details?

[14]Most of the argument on this issue was devoted to the question whether the court has jurisdiction to order a solicitor to disclose his client’s contact details. Put shortly, the Bank contends that the court does have such jurisdiction, on a number of possible grounds, while Clydes contend that no such jurisdiction exists (or, if it does in theory exist, that it should always be exercised so as to refuse disclosure). If the question of jurisdiction is answered in the Bank’s favour, it is then common ground that the court has a discretion whether or not to order this disclosure.

[15]I find it convenient to approach the issue the other way round, and to begin by making some general observations on matters which seems to me to be of particular relevance to the exercise of the court’s discretion, if one gets that far.

[16]My starting point is the 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. It will be sufficient at this point to cite some well-known extracts from R v Derby Magistrates’ Court, ex parte B

[1996] AC 487

. Lord Taylor of Gosforth said at 507A-D:

“I may end with two more recent affirmations of the general principle. In Hobbs v Hobbs and Cousens [1960] P. 112, 116-117, Stevenson J said: “privilege has a sound basis in common sense. It exists for the purpose of ensuring that there shall be complete and unqualified confidence in the mind of a client when he goes to his solicitor, or when he goes to his counsel, that that which he there divulges will never be disclosed to anybody else. It is only if the client feels safe in making a clean breast of his troubles to his advisers that litigation and the business of the law can be carried on satisfactorily … There is … an abundance of authority in support of the proposition that once legal professional privilege attaches to a document … that privilege attaches for all time and in all circumstances.”

In Balabel v Air India

[1988] Ch. 317

the basic principle justifying legal professional privilege was again said to be that a client should be able to obtain legal advice in confidence. The principle which runs through all these cases, and the many other cases which were cited, is that a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent. Legal professional privilege is thus much more than an ordinary rule of evidence, limited in its application to the facts of a particular case. It is a fundamental condition on which the administration of justice as a whole rests.” “privilege has a sound basis in common sense. It exists for the purpose of ensuring that there shall be complete and unqualified confidence in the mind of a client when he goes to his solicitor, or when he goes to his counsel, that that which he there divulges will never be disclosed to anybody else. It is only if the client feels safe in making a clean breast of his troubles to his advisers that litigation and the business of the law can be carried on satisfactorily … There is … an abundance of authority in support of the proposition that once legal professional privilege attaches to a document … that privilege attaches for all time and in all circumstances.”

[17]To similar effect, Lord Nicholls of Birkenhead said at 510D:

“The public interest in the efficient working of the legal system requires that people should be able to obtain professional legal advice on their rights and liabilities and obligations. This is desirable for the orderly conduct of everyday affairs. Similarly, people should be able to seek legal advice and assistance in connection with the proper conduct of court proceedings. To this end communications between clients and lawyers must be uninhibited. But, in practice, candour cannot be expected if disclosure of the contents of communications between client and lawyer may be compelled, to a client’s prejudice and contrary to his wishes. That is one aspect of the public interest. It takes the form of according to the client a right, or privilege as it is unhelpfully called, to withhold disclosure of the contents of client-lawyer communications.”

Lord Nicholls went on to reject the submission that there should be a judicial balancing exercise of this aspect of the public interest with the other aspect that all relevant material should be available to courts when deciding cases. At 512D he concluded that “the prospect of a judicial balancing exercise in this field is illusory, a veritable will-o’the-wisp”.

[18]My next point is that Mr Shalabayev, despite his deplorable conduct and unpurged contempt of court, is not an outlaw. Such a status is fortunately unknown to modern English law. The public interest in free and unfettered access to legal advice applies with just as much force to him as it does to anybody else. The court should therefore take no step which would whittle away or inhibit the ability of Mr Shalabayev to exercise his right to seek legal advice from the lawyer of his choice.

[19]The order sought by the Bank would not, of course, involve the disclosure by Clydes of any actual legal advice which they may have given to Mr Shalabayev, nor would it involve disclosure of any communications passing between Mr Shalabayev and Clydes for the purpose of obtaining legal advice. But 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 usually 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.

[20]A further most undesirable consequence would be the spectre of a potential conflict of interest between the client and the solicitor, with the solicitor constantly having to look over his shoulder to consider whether he might subsequently be called upon, as an officer of the court, to reveal to third parties hostile to his client’s interests information of a confidential but unprivileged nature supplied to him by the client. If the door were opened to the making of such orders on a regular basis, I have little doubt that much thought and ingenuity would then be devoted to attempts to devise defensive mechanisms, with all the expenditure of time, effort and money that this would entail. I also find it hard to see how the solicitor could properly continue to act for the client in any case where the answer to an application for such an order was not obvious.

[21]The Bank, for its part, naturally relies on the strong countervailing public interest in court orders being obeyed, in Mr Shalabayev being apprehended, and in the Bank being able effectively to prosecute its prima facie claim to trace and recover the proceeds of a massive international fraud. Nothing that I say in this judgment is intended to detract in any way from the force and strength of those considerations, and in many contexts they will carry the day.

[22]Having made these preliminary observations, I now turn to the logically prior question of jurisdiction.

[23]Counsel for the Bank argued that the necessary jurisdiction could be found either in section 37(1) of the Senior Courts Act 1981 or in the inherent power of the court to make orders ancillary to the freezing injunction against Mr Shalabayev. As a fall back, he also submitted that the court could make the order in exercise of the Norwich Pharmacal jurisdiction, or in exercise of its power to regulate the conduct of solicitors as officers of the court.

[24]Section 37(1) of the 1981 Act provides as follows:

“The High Court may by order (whether interlocutory or final) grant an injunction … in all cases in which it appears to the court to be just and convenient to do so.”

In A. J. Bekhor & Co Ltd v Bilton

[1981] QB 923

the Court of Appeal held, by a majority, that the power of the court to grant a freezing injunction under section 45(1) of the Supreme Court of Judicature (Consolidation) Act 1925 (the statutory precursor of section 37(1) of the 1981 Act) comprehended, or had inherent within it, the power to make all such ancillary orders as appear to the court to be just and convenient to ensure that the freezing injunction is effective to achieve its purpose: see per Ackner LJ at 940F-G and Griffiths LJ at 949B-C. The third member of the court, Stephenson LJ, agreed that the court had jurisdiction to order discovery in support of the injunction, but disagreed that the source of such power could be found in section 45(1). He held, instead, at 954A-D that a judge:

“… has a judicial discretion to implement a lawful order by ancillary orders obviously required for their efficacy, even though not previously made or expressly authorised. This implied jurisdiction, inherent because implicit in powers already recognised and exercised, and so different from any general or residual inherent jurisdiction, is hard to define and is to be assumed with caution.”

[25]The principle established in the Bekhor case has been followed in a number of subsequent cases, and in Maclaine Watson & Co Ltd v International Tin Council (No. 2)

[1989] Ch. 286

, the Court of Appeal held that it was authority for the proposition “that there is an inherent power under what is now section 37(1) to make any ancillary order, including an order for discovery, to ensure the effectiveness of any other order made by the court”: see the judgment of the court at 303E-F.

[26]In my judgment this line of authority provides ample jurisdiction for making an order of the type sought, if the court is satisfied that it is just and convenient to do so in order to ensure the effectiveness of an earlier order. Thus in the present case the order could in principle be made in support of any or all of the original freezing order, the committal order, and the interim costs order. The decision in the International Tin Council case shows that the ancillary jurisdiction does not have to be tied to the grant of an injunction, because discovery was there ordered in aid of execution of a final judgment, even though no freezing injunction had been granted because there was no reason to suppose the ITC would remove its assets from the jurisdiction in order to defeat execution. As a matter of analysis, it seems to me that where an injunction has been granted, the necessary ancillary jurisdiction can clearly be found in section 37(1). In the absence of an injunction, it is harder to see how section 37(1) can be the source of the jurisdiction, and I think the better view may be that reliance has to be placed on the principle stated by Stephenson LJ in Bekhor at 954A-D.

[27]In support of his argument for Clydes Mr Owen QC referred me to a number of old authorities where it was held that a solicitor should not be compelled to disclose his client’s address where it had been communicated to him in confidence.

[28]In Ex parte Campbell; in re Cathcart (1870) 5 Ch.App. 703 the question was whether a witness who was being examined under section 216 of the Bankruptcy Act 1861 should be compelled to disclose where the bankrupt’s father was living. The witness, who was the father’s solicitor, had declined to answer, saying that his client’s place of residence had come to his knowledge in his professional capacity. It was held by the Court of Appeal in Chancery, affirming the decision of the Registrar, that the witness could not refuse to answer the question on the ground of privilege. However, James LJ added at 705:

“If, indeed, the gentleman’s residence had been concealed; if he was in hiding for some reason or other, and the solicitor had said, “I only know my client’s residence because he has communicated it to me confidentially, as his solicitor, for the purpose of being advised by me, and he has not communicated it to the rest of the world,” then the client’s residence would have been a matter of professional confidence; but the mere statement by the solicitor, that he knows the residence only in consequence of his professional employment, is not sufficient.”

I agree with Mr Owen that this passage forms part of the ratio of the judgment, and the clear implication is that the solicitor would have been justified in refusing to disclose the father’s address if it had been communicated to him in confidence for the purpose of obtaining legal advice. Mr Owen goes on to submit that this is precisely the situation in which Clydes were provided with Mr Shalabayev’s contact details.

[29]Heath v Crealock (1873) L. R. 15 Eq. 257 concerned a solicitor, Crealock, who on his own admission had misappropriated £3,000 in breach of trust, and had absconded taking with him a mortgage deed and other documents relating to the trust. The plaintiffs asked Crealock’s solicitors to provide his address, with a view to effecting personal service on him and compelling the production of documents. The solicitors offered on his behalf to consent to an order for substituted service. However, Crealock instructed them not to disclose any information about his past or future whereabouts, or any other information which he had confided to them as his solicitors. It was argued for the plaintiffs (see page 258 of the report) that no question of professional confidence was involved, and that Crealock had no privilege “to conceal his address, and thus baffle the Court”. Sir James Bacon V.C. dismissed the application, saying at 259:

“There is no evidence that the solicitors, or any one else, know the address of this Defendant, and if they did there would be no obligation whatever on them to disclose it. The cases which have been cited … have no application, as they both relate to the concealment of wards of Court, and in all such cases a solicitor is bound to give to the Court every information which may lead to the discovery of their place of abode. I can find no precedent for making such an order as is asked, and I must refuse the motion with costs.”

Unfortunately that is the totality of the judgment, as reported, so it is not clear what line of reasoning led Bacon V.C. to his conclusion. Nor, apparently, was Ex parte Campbell cited to him. Nevertheless, it is notable that he refused to order disclosure of the address of a fugitive from justice, in circumstances where he had instructed his solicitors not to disclose it.

[30]Re Arnott; ex parte Chief Official Receiver (1888) 60 L.T.N.S. 109 was another case where the issue was whether a witness in bankruptcy proceedings (this time a solicitor’s clerk) should be ordered to disclose the address of the debtor client, which had been communicated in confidence to the solicitor for the purpose of obtaining legal advice in relation to the bankruptcy proceedings. Cave J held that the witness was entitled to refuse to answer the question. He considered that the case was covered by Ex parte Campbell, which was binding on him and which “decides that this address was a matter of professional confidence”. Cave J went on to reject a submission that the bankrupt and his solicitor were engaged in doing something wrong, and concluded:

“Here proceedings had been taken against the debtor in bankruptcy, and he might wish to be advised as to them, and, in as much as there is a perfectly legitimate subject-matter for professional advice, we are not to assume, when such exists, that the solicitor was engaged in doing something wrong. I think it is of the highest importance that a man should be able to consult his solicitor without fear, and therefore I refuse this application.”

[31]In my view these cases do not establish any lack of jurisdiction to make orders of the type sought, but they do provide valuable illustrations of the reasons why the appropriate course will normally be to refuse such an application where the address was provided to the solicitor in confidence for the purposes of obtaining legal advice.

[32]I must now consider a much more recent case on which Mr Marshall QC for the Bank understandably placed considerable reliance. In November 1996 Robert Walker J, on a without notice application, appointed a receiver over various assets both within and outside the jurisdiction in support of two freezing orders in very wide terms which had been made in November 1992 and May 1996 respectively. On 20 November 1996 Robert Walker J heard and dismissed an application, brought on behalf of a named BVI company and the unnamed trustees of a Liechtenstein trust, to discharge the receivership order. The judgment which he delivered on that occasion is reported as International Credit and Investment Co (Overseas) Ltd v Adham

[1998] BCC 134

. In his judgment Robert Walker J described the background to the matter as being “of enormous complication”, and at 136F he said this:

“The other point is that it has become increasingly clear, as the English High Court regrettably has to deal more and more often with major international fraud, that the court will, on appropriate occasions, take drastic action and will not allow its orders to be evaded by the manipulation of shadowy offshore trusts and companies formed in jurisdictions where secrecy is highly prized and official regulation is at a low level.”

Later in his judgment he reached the provisional conclusion that, although the firms of solicitors instructed and acting in England for the applicants were well aware of the importance of obeying orders of the court and of their duty to the court, there was good reason to doubt that the same was true of their ultimate clients, by which the judge meant “the individuals who control their ostensible clients”: see 138C and F.

[33]On 22 January 1997 an application was made by the plaintiffs in the underlying action against the solicitors who had appeared for the unnamed trustees of the Liechtenstein trust at the hearing in November. The application sought disclosure of the names and addresses of the clients by whom the solicitors had been instructed. The application was opposed, and experienced chancery counsel, Mr Timothy Evans, appeared for the solicitors. With considerable hesitation, Harman J granted the application. His judgment is reported only in The Times Law Reports (see International Credit and Investment Co (Overseas) Ltd and another v Adham and others, The Times Law Reports, 10 February 1997), but I have also been supplied with a transcript.

[34]Harman J described the application as “an extremely unusual one” which was unprecedented in his experience. He referred to the judgment delivered by Robert Walker J on 20 November, and quoted his observation at 136F-G which he described as “very important for this particular case”. Harman J went on to observe that the increasing prevalence of major international fraud had, of necessity, led the court into “making orders which I do not doubt an earlier generation of judges would have said should not be made. Otherwise, in effect, the court will find its jurisdiction defeated”.

[35]Harman J then recorded the argument advanced to him by Mr Evans on behalf of the solicitors:

“This, as I say, very unusual application is met by Mr Evans in a careful, limited and elegant argument which I think I can properly encapsulate in these propositions: Mr Evans does not assert or submit that the court – that is the High Court – has no power to order its officer (and a solicitor is of course an officer of the High Court and this motion is against a firm of solicitors, all the members of which must be officers of the High Court) to disclose the address of his client. That I think he conceded as arising out of the inherent jurisdiction and power of the court to control its officers and a matter which, as a matter of jurisdiction, is clear. He went on to say, however, that that power will only be exercised when the court has the need of an address of a client in order to make its process effectual. The sort of point canvassed in argument was an order for an injunction which was being defied or an order where a Receiver appointed by the court was being interfered with by a party so that there were present contempts and a need for personal service and so forth. Mr Evans submitted that even in such cases it might not be necessary because there was the alternative route of an order for substituted service. But he conceded that it might come to a point when, in order to put into effect, for example, an order for committal against a defendant or intervener for whom no address was available, the court had to find out his address in order to enforce its direction that he be committed to prison for his existing proved contempt. Thus, Mr Evans says the power is a wholly exceptional power, with which I agree, and it is only to be exercised in the very rarest case where it is necessary, as I think he submitted, to make process effectual. This case, he says, it far from one where it is necessary. It is understandable and it is, no doubt from the plaintiff’s point of view, desirable, but it is not, from the court’s point of view, necessary.”

[36]Harman J then discussed whether necessity was the right criterion for exercise of the “wholly exceptional power”, and expressed his conclusion as follows:

“I have hesitated quite a lot about this wholly unprecedented application before me but I think in the end I come to the conclusion that the jurisdiction which is conceded to exist should be exercised in this case upon the peculiar and special facts of this case, it being, above all, not only a fraud but a wholly international fraud with ample traces of attempts to judgment-proof assets and ample showing that the curious clients for whom the motion was made [in November 2006] were themselves directly within the sort of description which has already been quoted. I agree that it is an unusual order but it seems to me that in this particular case upon these particular facts I ought to exercise the jurisdiction and order that the solicitors do disclose the names and addresses of their lay clients.”

[37]It can be seen from the above account that the case was one of some generic similarity to the present case, and the court made an order of the type now sought by the Bank. Further, it seems reasonably clear that Harman J would have had no hesitation in ordering disclosure of a client’s address for the purposes of enforcing a committal order. As to jurisdiction, its existence was conceded before him, but in my view rightly conceded. The judge does not appear to have been referred to the Bekhor line of authority, but was willing to proceed on the basis of the undoubted jurisdiction of the High Court to give directions to solicitors as officers of the court. In my judgment that alternative basis for jurisdiction is clearly available, although it should only be exercised in appropriate circumstances and so as to further the interests of justice.

[38]I must now attempt to draw the threads together and state my conclusions. In the first place, I feel no real doubt that the court has jurisdiction to make the order sought. I base that conclusion both on the Bekhor line of authority and on the power of the High Court to give directions to solicitors as officers of the court. It is unnecessary for me to consider whether jurisdiction could also be founded on the Norwich Pharmacal line of cases, and I prefer to leave that question open. Secondly, I consider that the court must be alert not to make any order which might inhibit the fundamental right of Mr Shalabayev to seek and obtain legal advice from Clydes. Thirdly, the court should as far as possible respect the express condition of confidentiality subject to which Mr Shalabayev has provided his contact details to Clydes, while noting that the only reason for this given in Mr Connerty’s evidence is the fears that Mr Shalabayev says he has for the safety of himself and his family. Fourthly, there is a clear distinction in modern English law (although there was not at the date of the Victorian authorities which I have examined) between a client’s right to claim legal professional privilege, which is absolute, and the right to protection of confidential information, which is capable of being overridden by other considerations, not least in the context of disclosure under the CPR (and previously the Rules of the Supreme Court) where it is well established that confidentiality does not of itself justify non-disclosure of a relevant document or information. Fifthly, 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. Sixthly, the public interest which I have just mentioned applies with particular force to enforcement of the committal order against Mr Shalabayev, because 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.

[39]Taking all these considerations into account, I consider that the balance comes down in favour of ordering disclosure by Clydes of all the contact details (past and present) which they hold for Mr Shalabayev. The primary purpose of the disclosure is to aid enforcement of the committal order made by Briggs J on 27 June. In the absence of that order, I would probably not have been prepared to make the order sought. But in my view 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 purposes. Such a procedure is liable to bring the administration of justice into disrepute, and to give the impression that British justice is an a la carte menu from which he can order at choice without ever having to pay the bill. Furthermore, Mr Shalabayev cannot in my view shelter behind the need to protect privilege, because the committal proceedings are now at an end. Whatever advice he needed for the purposes of the committal proceedings has already been given, and he has not appealed against the committal order. The right of Mr Shalabayev to seek and obtain privileged legal advice from Clydes is not in issue. What he cannot reasonably do, in my judgment, is to keep a confidential line of communication with Clydes open for that purpose, while at the same time expecting his contact details to be withheld from those charged with enforcement of the committal order.

[40]I should add that I have taken account of Mr Connerty’s doubts whether disclosure of the contact details will in fact be of any assistance in tracing Mr Shalabayev. He may be right, but I do not think this is a matter about which the court should speculate. Prima facie, current telephone and email contact details may at least enable the Bank or the police to initiate further enquiries and, if so advised, seek disclosure from the relevant service providers. Furthermore, particulars of Mr Shalabayev’s earlier addresses or contact details may also open up fruitful lines of enquiry. In any event, even if the information does not lead to the apprehension of Mr Shalabayev, it may nevertheless be of assistance in tracing and identifying assets subject to the freezing order.

[41]Finally, I am no more impressed than Briggs J was by the professed fears of Mr Shalabayev for the safety of himself and his family. So far as he is concerned, his committal to prison should ensure his personal safety; and there is no evidence before the court, beyond a bare assertion, to suggest that discovery of his whereabouts would place his family at any greater risk than that to which they may already be subject.

Asset disclosure

[42]I now move on to the question whether Clydes should be ordered to disclose information relating to Mr Shalabayev’s assets. The disclosure sought under this heading is extremely wide. It extends to all information within Clydes’ knowledge or reasonable belief which Mr Shalabayev was required to provide under paragraph 9 of the freezing order of 3 November 2010. Paragraph 9(1) of the freezing order obliged Mr Shalabayev, within seven working days of service of the order and to the best of his ability after making all reasonable enquiries, to inform the Bank’s solicitors in writing of all his worldwide assets exceeding £10,000 in value, whether in his own name or not, and whether solely or jointly owned, and whether Mr Shalabayev was interested in them legally or beneficially or otherwise, and to give the value, location and details of all such assets. He was also obliged to supply copies of all documents in his control which evidenced the above matters. By virtue of paragraph 6 of the order, “assets” was widely defined to include any asset which he had the power, directly or indirectly, to dispose of or deal with as if it were his own, and it was provided that he was to be regarded as having such power “if a third party holds or controls the asset in accordance with his … direct or indirect instructions”.

[43]Two passages in Mr Connerty’s evidence, in addition to those which I have already quoted, are of particular relevance to this application. In his third statement Mr Connerty said:

“10. … Mr Hardman suggests that as Clyde & Co has acted for Mr Shalabayev for over 2 years, it is likely that we will have information on his assets, including his bank account details. 11. Any such information that I had about a client would be confidential, and would be very likely to have come to me in privileged circumstances; for Clyde & Co to be required to reveal such information would be inconsistent with our duties to keep such information privileged and confidential.”

In response to this evidence, Mr Hardman pointed out that Mr Connerty had given almost no details about the context in which the information was obtained, and certainly too little information to allow any claim to privilege to be assessed. Mr Hardman went on to say that, if it was suggested that any information provided to Clydes in relation to Mr Shalabayev’s assets would automatically attract privilege, the Bank did not agree. For example, if the bank details to which Mr Connerty referred were obtained by Clydes during the course of payment being made for services rendered, there could be no question of that information attracting privilege. In the light of these criticisms, Mr Connerty returned to the theme in his fifth statement. He said that any information given to Clydes by Mr Shalabayev about his assets “would certainly have been to enable us to give him legal advice”, so it did follow that the information came to Clydes in privileged circumstances. He referred to the various categories of document described in his first witness statement dated 15 June 2011, and said that the privilege asserted by Mr Shalabayev in the information sought by the Bank in the present application would be jointly shared with other clients of Clydes, including at least Mr Solodchenko and Mr Ablyazov. None of those persons had waived privilege, and if disclosure were now ordered, it would be necessary for them to be informed. With regard to Mr Hardman’s example of non-privileged information about a bank account, Mr Connerty said that as far as he was aware Clydes had never received any payment from Mr Shalabayev personally for professional services.

[44]For the reasons which I have already given, I am satisfied that the court would have jurisdiction to make the order sought by the Bank. However, I do not consider that it would be right to make such an order. My reasons are as follows.

[45]First, it seems to me overwhelmingly likely that any information about his assets (as broadly defined in the freezing order) which Mr Shalabayev may have supplied to Clydes will have been given to them in the context and for the purposes of obtaining legal advice. Not only is this what I would expect, but Mr Connerty says as much (although with greater conviction in his fifth statement than his third). It is therefore highly probable that the information was privileged when it came into Clydes’ hands. Nor, on the evidence before me, has there been any subsequent waiver of privilege by Mr Shalabayev (whether the privilege is his alone, or joint).

[46]Secondly, the obligation on Mr Shalabayev to make disclosure of his assets is a continuing one of which he is still in flagrant breach. Clydes still act for him, and there may well be asset-related issues on which he is now seeking, or may in the future seek, their advice. To require Clydes, in those circumstances, to do their best to give the same disclosure that their client is obliged to give, would in my view be doubly objectionable. It would inhibit Mr Shalabayev’s right to seek legal advice from Clydes, and at the same time it would place Clydes themselves in an impossible situation.

[47]Thirdly, and by way of amplification of what I have just said, the terms of paragraph 9 of the freezing order, and the associated definition of “assets”, are of such width that Clydes could not reasonably be expected to form a view about the full extent of their obligation to give disclosure to the Bank without first taking instructions from Mr Shalabayev and/or making use of privileged information already supplied to them. How, for example, could Clydes be expected to form a “reasonable belief” whether an asset held by a third party is under Mr Shalabayev’s direct or indirect control without taking detailed instructions from him or examining privileged material? And how could Clydes be expected to carry on acting for Mr Shalabayev while performing such an intrusive and disruptive exercise? I respectfully agree with the written submission of counsel for Clydes that “[a]ny meaningful compliance with the order sought would almost certainly have to embody a combination of(a) client instructions,

(b) advice given to a client and

[48]More generally, I have a real concern 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 the 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.

[49]I therefore conclude that this part of the application is misconceived and must be dismissed.

Funding disclosure

[50]The third head of disclosure sought by the Bank relates to the payment or funding of Clydes’ legal costs. I have already pointed out that, as originally formulated, the discovery requested under this head was confined to assets of Mr Shalabayev’s, although it extended to Clydes’ costs in respect of any matter. In the light of Mr Connerty’s evidence (in his fifth statement) that Clydes had never, so far as he was aware, been paid by Mr Shalabayev personally for professional services, and in the light of Mr Shalabayev’s failure to satisfy the interim costs order against him, the Bank says that it now needs to consider making an application under section 51 of Senior Courts Act 1981 for a costs order against a non-party. In order to make such an application, the source of funding needs to be disclosed. Accordingly, the disclosure now sought under this heading is of full details of any monies, any account or any other asset, “and the identity of the holder of that asset”, used for paying the fees and disbursements of Clydes “in respect of these proceedings”. Thus the focus is now on the source of the funding of Clydes’ legal costs, but only in respect of the present proceedings instead of “any matter”.

[51]In order to address this reformulation of the Bank’s application, Mr Connerty produced a sixth statement dated 14 July 2011. He said that he had asked for searches to be carried out to confirm his belief that Clydes had never received any payments for services from Mr Shalabayev personally. Those searches are proving difficult and time consuming, and are still in progress. For more than a year from February 2009 onwards, Clydes acted for Mr Ablyazov and a number of other individuals and companies associated with him, including Mr Shalabayev. Bills on a variety of matters were submitted on a monthly basis, and money was received on account, together with payment of invoices, on an irregular basis. All the relevant invoicing and payment documentation has been archived.

[52]Mr Connerty continues:

“4. So far all the payment information I have seen relating to these matters confirms that no payment was made by Mr Shalabayev personally, with one exception. In December 2009 (before this action was commenced) we received one payment by Mr Shalabayev … 5. … I can confirm that Mr Shalabayev’s defence to the action is not being funded by any third party who has a financial or other commercial interest in its outcome or who is in any way controlling its course.”

[53]Mr Marshall QC did not object to the introduction of this evidence, nor did he ask for permission to cross-examine Mr Connerty on it. In those circumstances it seems to me that Mr Connerty’s evidence must be accepted at face value, and subject to one qualification the Bank is unable to show any basis for seeking information about third party funding of the proceedings at this stage.

[54]The qualification is this. Mr Connerty refers to the funding of Mr Shalabayev’s “defence to the action”. It is not entirely clear to me whether this expression includes the committal proceedings. If it were the case that Mr Shalabayev had the benefit of funding by an interested third party for the intermittent part which he played in the committal proceedings, the Bank would in my view be entitled to details of who the funders were. I assume, however, that Mr Connerty meant to include the committal proceedings in what he said, and if that is correct a short letter of clarification from him to the Bank’s solicitors would suffice. On the assumption that such a letter is forthcoming, I consider that this part of the application too must be dismissed.

Conclusion

[55]For the reasons which I have given, I will order disclosure of Mr Shalabayev’s contact details, but (subject to the qualification which I have just mentioned) the remainder of the application will be dismissed.

Cited in 13 later judgments

and 4 more of the most senior