JSC BTA Bank v Shalabayev & Anor [2011] EWHC 2915 (Ch)

[2011] EWHC 2915 (Ch)

Case No HC10C02462

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Rolls Building, Fetter Lane

Date 10/11/2011

London EC4A 1NL

Before

MR JUSTICE HENDERSON

JSC BTA BANK Claimant and Respondent- and -(14) SYRYM SHALABAYEV Defendants and Applicants

Between

MUKHTAR ABLYAZOV

Mr Philip Marshall QC and Ms Emily Gillett (instructed by Hogan Lovells International LLP) for Claimant

Mr Brian Doctor QC and Mr James Duffy (instructed by Clyde & Co LLP) for 14th and 18th Defendants

Hearing Hearing date: 28 October 2011

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

MR JUSTICE HENDERSON

Introduction

[1]This is an application by the fourteenth and eighteenth defendants, Mr Syrym Shalabayev and Mr Mukhtar Ablyazov, for relief from sanctions in respect of their failure to comply with the unless order made against them by Arnold J on 13 September 2011 (“the Unless Order”). At a hearing which took place on 7 October I upheld the contention of the claimant (“the Bank”) that Mr Shalabayev and Mr Ablyazov had failed to comply with the Unless Order, and directed that any application for relief from sanctions should be made by means of a formal application for that purpose. The application notice was issued later the same day. It was not initially supported by any further evidence, as notice of the desire of these defendants to make an application for relief, should it be held that they were in breach of the Unless Order, had already been given informally at the hearing on 7 October, and the matters principally relied on were set out in the tenth witness statement of their solicitor, Mr Julian Connerty of Clyde & Co LLP, dated 6 October. The Bank then answered this evidence in the fourth witness statement (dated 17 October) of Mr Alexander Sciannaca, who is a senior associate at Hogan Lovells International LLP, the Bank’s English solicitors with conduct of the present action in the Chancery Division and several related sets of proceedings in the Commercial Court. The evidence was completed by a further statement in reply from Mr Connerty on 25 October.

[2]The background to the application is briefly as follows. On 3 February 2011, upon an application made without notice by the Bank, I granted a search order in respect of a storage unit licensed to the fourteenth defendant’s brother, Mr Salim Shalabayev, at premises of the Big Yellow Storage Co in Finchley, North London. The search was executed on 7 February. Among the material seized were fourteen boxes of documents that appeared to contain Clyde & Co client files and some associated loose papers. The boxes were taken into the custody of the supervising solicitors, Powell Gilbert LLP.

[3]The question then arose of how to deal with possible claims to privilege over documents contained in the boxes. An initial review, deliberately conducted on a very cautious basis, was carried out by leading counsel instructed by the supervising solicitors, Mr Robert Levy QC. As a result of this review, the documents which were clearly not privileged, amounting to approximately 56% of the total, were released to the Bank, but the remaining 44% (about 8,000 documents in all) were retained on the basis that they either appeared to be privileged or, at least, the possibility of a valid claim to privilege being made could not at that stage safely be ruled out.

[4]Some of the retained material was then inspected by Clyde & Co at Powell Gilbert’s offices in early July, and on 25 July a hearing took place before me at which various ways forward were canvassed for identifying and resolving the privilege issues which appeared likely to arise. The solution which I adopted was a good deal less extreme than that for which the Bank had argued, and which would have required the party advancing a claim to privilege to answer a detailed checklist of questions for each and every document, so that the precise nature and circumstances of the claim could be understood. Instead, I directed Powell Gilbert to provide Clyde & Co with electronic copies of all the documents, and ordered the fourteenth and eighteenth defendants by 31 August 2011: a) to identify those documents on which they, Mr Roman Solodchenko (the first defendant in the present action) and/or Mr Zhaksylyk Zharimbetov (a defendant in the Drey proceedings in the Commercial Court) asserted legal professional privilege; and b) in respect of any documents over which such privilege was asserted, to “provide sufficient particularity of the claim to privilege so as to enable the Bank to decide whether to challenge such claim”.

[5]In adopting this less prescriptive approach, I was partly influenced by the difficulty of knowing in advance what types of claim to privilege were likely to be thrown up by the review, but also (and to a significant extent) by assurances from leading counsel for the fourteenth and eighteenth defendants (Mr Brian Doctor QC) that both Clyde & Co and their clients were well aware of the need for all of the documents to be carefully examined, and for any claim to privilege to be made with enough particularity for the Bank to be able to made an informed decision whether or not to challenge it. Thus, for example, I said in an exchange with Mr Marshall QC for the Bank:

“… I would expect both sides to approach this with a degree of common sense, given that I do not think that there is any dispute about the underlying principle, which is that any claim for privilege should be sufficiently particularised for the Bank to be able to make a challenge, if so advised, on any grounds, including those which you have just mentioned [which included claims to collation or Palermo privilege] as ones which may arise. But equally I would not expect your side to insist on a pedantic adherence to every single point being repeated time after time, when it can be dealt with, if appropriate, in a more expeditious and time-saving manner.”

[6]In the event, the review took longer than Clyde & Co had expected, and two extensions of time were sought and granted by Arnold J, although the second extension was coupled with the Unless Order. In his rulings on these applications, Arnold J criticised Clyde & Co both for leaving them to the last minute, without informing the Bank in good time of the difficulties that were being encountered, and for the poor quality (as the judge saw it) of some of the evidence offered in support. The Unless Order itself was in the following terms:

“Unless the Fourteenth and Eighteenth Defendants comply with paragraphs 2(a) and (b) of the Order of Mr Justice Henderson dated 25 July 2011 (“the July Order”) by 4 pm on 20 September 2011 they shall be debarred from claiming privilege over all those documents contained in the Boxes (as defined in the July Order) in respect of which there has been no claim to privilege in accordance with the July Order by that date.”

[7]As the judge made clear in the course of argument and in his ruling, the wording of the Unless Order was carefully chosen so as to ensure that the defendants would be debarred from claiming privilege only over documents in respect of which no proper claim in accordance with the July Order had been advanced by 20 September. Thus, in the event of only partial compliance with the July Order, the defendants would still be able to claim privilege for documents in respect of which a proper claim had been made, that is to say (in terms of the July Order) a claim of sufficient particularity to enable the Bank to decide whether or not to challenge it. A saving of this nature was plainly appropriate in view of the fundamental and absolute nature of the right to legal professional privilege, to which “no exception should be allowed” once it has been established: see R v Derby Magistrates’ Court, ex parte B

[1996] 1 AC 487

at 508H per Lord Taylor of Gosforth.

[8]In purported compliance with the Unless Order, Clyde & Co served a schedule on 20 September 2011 which advanced claims to litigation, legal advice, collation and/or Palermo privilege over 2,069 documents. The basis of the claims was set out in a covering letter of the same date, but only in the most general terms; and nowhere, either in the schedule or in the letter, was it apparent which client was claiming privilege for each document. Further, although each document was identified by date (when known) and by reference to its original location in the boxes, the description of the documents was often uninformative in the extreme (e.g. “email”, “document”, “report”, “letter” or “chart/diagram”, without any elucidation of its nature or context); there were often no details of the parties; and no indication of the nature of the claim to privilege was given, beyond a bare generic label (e.g. “litigation”, “legal advice”, or “collation; Palermo”) and the wholly general description in the covering letter. So, for example, a great many entries on the schedule revealed no more than that the document in question was an undated chart or diagram for which litigation privilege was claimed, on behalf of an unspecified client and in unspecified circumstances.

[9]The Bank and its advisers unsurprisingly took the view that this schedule was manifestly inadequate, and that it also betrayed a misunderstanding of the very limited circumstances in which collation or Palermo privilege may even arguably be claimed. Accordingly on 13 September the Bank made an application, returnable on 7 October, seeking a declaration that Mr Shalabayev and Mr Ablyazov had failed to comply with the Unless Order, with the consequence that they were debarred from claiming privilege over the documents contained in the boxes. The Bank’s criticisms of the schedule were cogently advanced in correspondence and in Mr Sciannaca’s third statement of 30 September. This led to a radical reconsideration of the position by Clyde & Co, and on 6 October Mr Connerty filed his tenth statement exhibiting a revised schedule (“the Revised Schedule”) in which privilege was now claimed for only 243 documents. All claims to collation or Palermo privilege were abandoned, with the result that privilege was claimed only on the basis of litigation or legal advice privilege. Fuller details were also provided in relation to the remaining documents, for example by amendments to their description or to the details of their recipients, creators, and so on; and a column was added to the schedule in order to indicate why privilege was claimed for the document in question. Mr Connerty also dealt with the question of who was claiming privilege. He explained that, with the exception of two folders which contained documents belonging to Mr Ablyazov, and a small number of loose documents in box 14, in which privilege again belonged to Mr Ablyazov alone, in all other cases privilege belonged jointly to Mr Ablyazov, Mr Solodchenko, Mr Zharimbetov and Mr Shalabayev (“the BTA clients”), for whom Clyde & Co had acted in 2009 and the first half of 2010, and by whom they had been jointly instructed with a waiver of privilege and confidentiality as between themselves.

[10]Of the 243 remaining documents, the majority (amounting to approximately 125) were said to be charts or diagrams in respect of which litigation and/or legal advice privilege was claimed. In his statement Mr Connerty described these documents as follows:

“17. The Boxes contain a large number of schematic diagrams, some hand drawn, mostly computer generated, which were produced in contemplation of litigation or in connection with ongoing litigation. These documents were normally produced by Clyde & Co, occasionally by the client with Clyde & Co or to be provided to Clyde & Co. Most of these diagrams were produced by a large team of corporate lawyers and paralegals working under the supervision of a corporate partner. This team varied in size, but would have been up to 10 at any one time, including some Russian speaking and/or Russian qualified lawyers. Not all of those people are still employed by Clyde & Co. A few of the diagrams were produced by the clients themselves. These diagrams were produced for a variety of purposes. Without waiving privilege in the diagrams or the advice given, the purposes for which they were produced would have included (i) considering the allegations of breaches of Kazakh law and regulation that underlay prosecutions in Kazakhstan; (ii) considering the allegations made in the Drey litigation; (iii) considering Mr Ablyazov’s asset disclosure obligations in the Drey litigation; (iv) corporate transactions. 18. It is not now possible for us to say which diagrams were prepared by the client, and which by Clyde & Co; or by which Clyde & Co personnel; or on the instruction of which client; or on what dates; or for which purpose. We are therefore limited in the amount of particularity that we can provide. They are described in the schedule as “chart/diagram” or “diagram”

. It is possible for us to say that these diagrams were produced by or for our BTA clients in connection with actual or contemplated litigation, or for the purposes of giving legal advice, and they are therefore clearly privileged.”

[11]In his statement Mr Connerty also asserted that the 243 documents listed in the Revised Schedule were “obviously privileged” and it would not be right if they were disclosed to the Bank.

[12]In their skeleton argument for the hearing on 7 October, counsel for the fourteenth and eighteenth defendants maintained the argument that the schedule of 20 September had complied with the Unless Order, but contended in the alternative that, if it did not, relief from sanctions should be granted. They submitted that the Revised Schedule clearly complied with the July Order, and that the delay of 16 days in providing a compliant schedule could not have caused the Bank any significant prejudice.

[13]It was against this background that I held on 7 October that the schedule of 20 September did not comply with the July Order, with the consequence that the Unless Order automatically took effect in accordance with the principles explained by the Court of Appeal in Marcan Shipping (London) Limited v Kefalas

[2007] EWCA Civ 463

[2007] 1 WLR 1864

. I also gave directions (as I have already said) for the issue of an application for relief from sanctions, with a fairly tight timetable for evidence. I expressed the provisional view that the real issue was likely to be the merits of the claims for privilege in the Revised Schedule, because the court was unlikely to hold that it either could or should prevent a litigant from advancing a properly formulated claim to privilege, even if he was in default of a court order. I therefore said I hoped that the Bank’s evidence would deal, as far as possible, with any specific objections that the Bank might wish to make to the claims set out in the Revised Schedule, as well as with the question of relief from sanctions.

[14]Unfortunately, Mr Connerty’s claim that the 243 documents listed in the Revised Schedule were obviously privileged was soon shown to be over-optimistic. Between 12 and 14 October Clyde & Co informed Hogan Lovells that a “further review” had led to the withdrawal of claims for privilege over an estimated 24 documents. In a further letter of 14 October this number was increased to 73, which were listed in an accompanying schedule. The Bank was still not satisfied, however, and in his fourth witness statement of 17 October Mr Sciannaca contended for a number of reasons that the Revised Schedule was still “a manifestly deficient document”. He pointed out, among other things, that several of the documents described by Clyde & Co as a “chart/diagram” were not in fact a single document, but comprised a group of documents, most if not all of which were clearly neither charts nor diagrams. So, for example, document 951, which was initially described as a “Chart/Diagram prepared by Corporate Diligence team at Clyde & Co LLP in or around October 2009 in connection with ongoing litigation” in fact included at least four documents (a letter relating to a trust, a declaration of trust, a share transfer and a trust deed) in respect of which any claim to privilege had been abandoned on 14 October. Mr Sciannaca complained, with justification, that the description of document 951 in the Revised Schedule was deficient in that it failed to disclose that it comprised at least four documents, it gave a description which did not fit any of the four documents now disclosed, and it erroneously asserted a claim to privilege in relation to them. Nor was this an isolated instance: Mr Sciannaca said that similar points could be made in relation to 17 other documents. This all suggested that the claims to privilege in the Revised Schedule had been made “in a careless and opaque manner”. Mr Sciannaca also questioned the joint nature of the privilege asserted on behalf of Clyde & Co’s clients, and raised a number of questions about individual claims to privilege which appeared to him to be “very doubtful” on the basis of the information provided.

[15]This evidence was then answered by Mr Connerty on 25 October. He said that a “final review” of the documents had been carried out by him and Naomi Knill, a legal director at Clyde & Co, after the hearing on 7 October, which had led to the abandonment of claims to privilege over 19 documents provided to Hogan Lovells on 13 October and the further documents listed in the schedule of 14 October. Since then, and in the light of Mr Sciannaca’s fourth statement, a “final series of reviews” of the schedule and the underlying documents had been carried out by Mr Connerty and Mr James Duffy of counsel, as a result of which claims to privilege over a further nine documents had also been dropped. The total number of documents for which privilege was claimed was now 221, which were listed in an attached schedule (“the 221 Schedule”).

[16]The difference in number between the 243 documents in the Revised Schedule and the 221 documents in the 221 Schedule is only 22, which is of course considerably less than the number of documents over which claims to privilege had been abandoned between 7 and 25 October. Mr Connerty explained this discrepancy by saying that all the documents in a single tab of a lever arch file had originally been scanned and treated as single documents. In particular, the documents (like document 951) which were described as “chart/diagram” had come to Clyde & Co in the form of single PDF files, and could more accurately have been described as a “bundle of documents”. Clyde & Co’s final position, following the review with junior counsel, was to maintain claims to litigation privilege over the chart or diagram itself, but to list individually and disclose all the other documents included in the relevant PDF files. Thus document 951 remains in the 221 Schedule, but the only claim to privilege advanced is a claim for litigation privilege for the chart or diagram itself. The description of the claim to privilege remains the same as it was in the Revised Schedule, but now it applies only to the chart/diagram.

[17]With regard to the nature of the claim to joint privilege, Mr Connerty said this:

“19. The claim to joint privilege has a simple basis. Clyde & Co were instructed jointly by four individuals, Mr Ablyazov, Mr Solodchenko, Mr Zharimbetov and Mr Shalabayev concerning the allegations which, at first, it was envisaged would be made against all of them by the Bank in litigation it was anticipated would commence quite soon, and subsequently in relation to the charges which were made against three of them (not including Mr Shalabayev) in litigation. Although we did from time to time do specific work for each of them which related only to that person (such as immigration advice and so on) we acted for all of them at the same time, and all of them, as they were required from time to time, attended meetings and sat in on the deliberations during which advice was given on the joint matter. Obviously, Mr Ablyazov, and to a lesser extent Mr Solodchenko, were the most involved in those deliberations and Mr Ablyazov attended the majority of consultations, with Mr Solodchenko attending the next greatest amount. Mr Zharimbetov and Mr Shalabayev attended more infrequently but when they did attend, they joined in the overall consultation and sought and received advice during those sessions. As I say, on some occasions, the individuals had specific problems which were dealt with separately. For a short period Clyde & Co were also instructed by Drey Associates, again, jointly with our other BTA clients. Advice was sought, and given, jointly, and is therefore jointly privileged. 20. As an example of the alleged vagueness of the claim to joint privilege Mr Sciannaca states … that I have conceded that I cannot say in every case whether the diagrams were prepared by Clyde & Co, or our clients, or when, or what they were prepared for. I do not accept that this demonstrates an insufficient level of detail to establish joint privilege. The key point is that they were prepared on the basis of a joint instruction. I have said in paragraphs 17 to 18 of my Tenth Witness Statement what the diagrams were prepared for, i.e. one or more of 4 specific purposes, all of which required the giving of legal advice. I have said when they were prepared (albeit not on an individual basis) – they were prepared in the early stage of our instruction. I cannot say in respect of every diagram if they were prepared by Clyde & Co, or by the clients. Some of the diagrams contain “footers” with individual reference numbers showing that they are Clyde & Co documents. But some do not, and so could be Clyde & Co documents or client documents. But with the exception of two diagrams (referred to further below) I can say, and have said, that they were prepared either by the clients themselves, or by Clyde & Co, in the course of our joint instruction, and are therefore jointly privileged.”

[18]Mr Connerty also dealt with some of the challenges to individual documents made by Mr Sciannaca, and explained that after again discussing one particular diagram (which was listed twice in the 221 Schedule) with Mr Ablyazov, it transpired that it had not been produced either by him or for him, so this claim to privilege was no longer pursued. Other claims to privilege which Mr Sciannaca had questioned, however, were maintained and some further details were given. Mr Connerty commented:

“Mr Sciannaca has challenged the claim to privilege in these documents, and I have responded; it follows in my view that sufficient particularity of these documents was provided to enable the Bank to challenge the claim to privilege.”

Legal professional privilege: the law

[19]It is common ground that, although the right to assert legal professional privilege is to be treated as a substantive legal right, it nevertheless has to be asserted by the person alleged to be entitled to the right, and the burden of proof is upon that person properly to establish that privilege applies.

[20]The degree of specificity required in a claim to privilege was helpfully described by Beatson J in West London Pipeline & Storage Limited v Total UK Limited

[2008] EWHC 1729 (Comm)

at [53]:

“Thus, affidavits claiming privilege whether sworn by the legal advisers to the party claiming privilege as is often the case, or, as in this case, by a Director of the party, should be specific enough to show something of the deponents’ analysis of the documents or, in the case of a claim to litigation privilege, the purpose for which they were created. It is desirable that they should refer to such contemporary material as it is possible to do so without making disclosure of the very matters that the claim for privilege is designed to protect.”

[21]As Lord Scott of Foscote pointed out in Three Rivers District Council v Bank of England (No. 6)

[2004] UKHL 48

[2005] 1 AC 610

, at [10]:

“The modern case law on legal professional privilege has divided privilege into two categories, legal advice privilege and litigation privilege. Litigation privilege covers all documents brought into being for the purposes of litigation. Legal advice privilege covers communications between lawyers and their clients whereby legal advice is sought or given.”

[22]Lord Scott went on to discuss the nature of legal advice privilege at [38]:

“In Balabel v Air India [1988] Ch 317 Taylor LJ said, at p330, that for the purposes of attracting legal advice privilege “legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context.”

I would venture to draw attention to Taylor LJ’s reference to “the relevant legal context”. That there must be a “relevant legal context” in order for the advice to attract legal professional privilege should not be in doubt. Taylor LJ said, at p331, that “to extend privilege without limit to all solicitor and client communication upon matters within the ordinary business of a solicitor and referable to that relationship [would be] too wide”. This remark is, in my respectful opinion, plainly correct. If a solicitor becomes the client’s “man of business”, and some solicitors do, responsible for advising the client on all matters of business, including investment policy, finance policy and other business matters, the advice may lack a relevant legal context … In cases of doubt the judge called upon to make the decision should ask whether the advice relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law. If it does not, then, in my opinion, legal advice privilege would not apply. If it does so relate then, in my opinion, the judge should ask himself whether the communication falls within the policy underlying the justification for legal advice privilege in our law. Is the occasion on which the communication takes place and is the purpose for which it takes place such as to make it reasonable to expect the privilege to apply? The criterion must, in my opinion, be an objective one.” “legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context.” “to extend privilege without limit to all solicitor and client communication upon matters within the ordinary business of a solicitor and referable to that relationship [would be] too wide”.

[23]The underlying public policy justification for legal advice privilege was described in the same case by Lord Rodger of Earlsferry at [54], in a statement which may be taken as representative of similar passages to be found throughout the modern case law:

“… the public interest justification for the privilege is the same today as it was 350 years ago: it does not change, or need to change, because it is rooted in an aspect of human nature which does not change either. If the advice given by lawyers is to be sound, their clients must make them aware of all the relevant circumstances of the problem. Clients will be reluctant to do so, however, unless they can be sure that what they say about any potentially damaging or embarrassing circumstances will not be revealed later. So it is settled that, in the absence of a waiver by the client, communications between clients and their lawyers for the purpose of obtaining legal advice must be kept confidential and cannot be made the subject of evidence. Of course, this means that, from time to time, a tribunal will be deprived of potentially useful evidence but the public interest in people being properly advised on matters of law is held to outweigh the competing public interest in making that evidence available.”

[24]The general principles of litigation privilege are equally well established, and a helpful summary was provided by Lord Carswell in Three Rivers (No.6) at [102]:

“The conclusion to be drawn from the trilogy of 19th 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.”

It follows from these principles that a document which did not originally come into existence for the purposes of litigation will not be privileged, even if it is subsequently supplied to a party’s lawyer for the purposes of litigation: see generally Ventouris v Mountain

[1991] 1 WLR 607

(CA).

[25]It is also relevant to note that, in order to decide whether a communication is subject to litigation privilege, the court needs to make an objective assessment of the purpose of the person or body that created it: see Guinness Peat Limited v Fitzroy Robinson Partnership

[1987] 1 WLR 1027

at 1037B-C per Slade LJ, with whom Woolf LJ and Sir George Waller agreed. Accordingly, as Aikens J said in Winterthur Swiss Insurance Company v A G (Manchester) Limited

[2006] EWHC 839 (Comm)

at [83], in considering whether material might be subject to litigation privilege, three questions arise:

“First, at the time that the relevant communications were created, was litigation contemplated? Secondly, were the communications created for the dominant purpose of obtaining legal advice for that litigation or in aid of that litigation? Thirdly, under the direction of which person or entity, objectively, were those communications created?”

Have Mr Ablyazov and Mr Shalabayev now complied with the July Order?

[26]The first question that I need to consider is whether (and, if so, to what extent) the 221 Schedule complies with the July Order. I agree with the submission of counsel for the Bank that the question of relief from sanctions can only arise if compliance has now been achieved. If it were otherwise, I would in effect be varying (in the defendants’ favour) the order which I made on 7 October, even though it has not been appealed. The question of compliance is not, however, an all or nothing one, because of the way in which the Unless Order was framed. The question needs to be answered in relation to each document for which privilege is claimed, by reference to the test in the July Order. In relation to those documents for which the test is satisfied, the defendants will have now done belatedly what they should have done by 20 September, and the court will then need to consider whether relief should be granted from the sanction in the Unless Order so as to enable them to claim privilege for those documents. If, however, there are any documents for which the test is still not satisfied, the defendants will remain in default to that extent, and there can be no question of granting any relief at this stage.

[27]I have recounted the long and tortuous process which has finally led to the production of the 221 Schedule. It is a process which in my judgment reflects little credit on Clyde & Co, and it is hard to avoid the conclusion that an insufficiently rigorous and professional approach was adopted to at least the initial phases of the review. Perhaps understandably, in the light of that history, the Bank submits that even now the 221 Schedule is so deficient that it does not comply with the July Order at all, or alternatively that (at best) only a handful of 31 documents (which are listed on a schedule appended to the Bank’s skeleton argument) may be taken as compliant. Against this, however, I need to remember that the standard set by the July Order was, deliberately, not a very high one. The July Order did not envisage or require that the claims to privilege advanced should be definitive, or the last word on the subject by the defendants, but only that they should be sufficiently particularised to enable the Bank to decide whether or not to challenge them. If a challenge was made, it was envisaged that further dialogue would ensue, and only if the parties were unable to reach agreement would the court finally have to rule on the question. At that final stage, but not before, the formulation of a claim for privilege would need to assume its definitive shape. Thus the July Order, construed as it must be in its context, represented an essentially pragmatic attempt to set in motion the initial stages of a process for the identification and resolution of claims to privilege. If this was to be accomplished, it was in my view necessary for the parties to approach the task in a spirit of co-operation, reflecting their duty under CPR Rule 1.3 “to help the court to further the overriding objective”.

[28]Viewed in this light, it seems to me that the 221 Schedule, although it still suffers from some serious defects, nevertheless contains enough detail (when read in conjunction with Mr Connerty’s evidence) to satisfy the relatively unexacting standard laid down by the July Order. I cannot ignore the fact that it has been prepared under the supervision of an experienced solicitor, after several exchanges of correspondence with Hogan Lovells, and that the most recent review of the documents was carried out with the assistance of junior counsel instructed on behalf of Mr Ablyazov and Mr Shalabayev. I think I must therefore assume, in the absence of compelling evidence to the contrary, that the basic requirements of legal advice privilege and litigation privilege were well understood by those who prepared the 221 Schedule, and that where (for example) the explanation given in the right-hand column for a claim to litigation privilege says that the document in question was prepared “in contemplation of litigation or in connection with ongoing litigation”, it should be understood that the “sole or dominant purpose” test is thereby alleged to be satisfied. Further, although the litigation is not further specified, Mr Doctor makes the fair point that Clyde & Co acted for the BTA clients for only a limited period, and when Mr Ablyazov first sought asylum in the UK with his family in the Spring of 2009 he was already involved in criminal and regulatory proceedings in Kazakhstan arising out of his conduct of the Bank’s affairs, and the litigation against him in England was begun only a few months later (in August 2009). It is therefore reasonable to assume that the legal advice which he and the other BTA clients sought from Clyde & Co was litigation-related, except where it concerned separate matters such as immigration.

[29]I think I must also assume that, where no date is given for a document on the 221 Schedule, or where no details are given of the parties to it or the sender or recipient, the reason is not that these particulars are being deliberately withheld, but simply that they cannot be discovered from the document itself and Clyde & Co are at present unable to supply them from any other source. It needs to be remembered in this connection that Clyde & Co were asked to, and did, return all of their files when they ceased acting for the BTA clients (apart from Mr Shalabayev) in 2010.

[30]I was taken through the items on the 221 Schedule by counsel on both sides, and I have read it again since reserving judgment at the conclusion of the hearing on 28 October. As I have already indicated, a number of objections were made by counsel for the Bank. Some of these objections related to categories of document (such as the charts or diagrams, or documents described only as an “index” or “report” with no further particulars); while other objections were more specific, and related to individual documents. I do not consider that it would be a useful exercise for me to go through these objections now, because the only question at this stage is whether the threshold test in the July Order is satisfied. Despite its prolonged and unhappy gestation, I think that the 221 Schedule does now satisfy the test, albeit by a fairly narrow margin. It follows that, subject to the question of relief from sanctions, the next stage will be for the Bank to challenge those of the privilege claims that it is not prepared to accept. I would expect the parties to seek to resolve the challenges in a spirit of co-operation, and within a period measured in weeks rather than months. Any remaining issues which the parties are unable to resolve must then be determined by the court.

Relief from sanctions

[31]The next question is therefore this: should the court grant relief from sanctions, so as to enable the process which I have just outlined to proceed?

[32]CPR Rule 3.9(1) provides as follows:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including – (a) the interests of the administration of justice; (b) whether the application for relief has been made promptly; (c) whether the failure to comply was intentional; (d) whether there is a good explanation for the failure; (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol; (f) whether the failure to comply was caused by the party or his legal representative; (g) whether the trial date or the likely trial date can still be met if relief is granted; (h) the effect which the failure to comply had on each party; and (i) the effect which the granting of relief would have on each party.” (a) the interests of the administration of justice; (b) whether the application for relief has been made promptly; (c) whether the failure to comply was intentional; (d) whether there is a good explanation for the failure; (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol; (f) whether the failure to comply was caused by the party or his legal representative; (g) whether the trial date or the likely trial date can still be met if relief is granted; (h) the effect which the failure to comply had on each party; and (i) the effect which the granting of relief would have on each party.”

[33]Both the injunction to consider all the circumstances, and the use of the word “including”, make it clear that the list in rule 3.9(1) is not intended to be exhaustive. In the context of the present application, there is one circumstance which appears to me to assume overwhelming importance, and that is the fundamental nature of the right to privilege in English law. As Lord Scott said in Three Rivers (No. 6) at [25]:

“… if a communication or document qualifies for legal professional privilege, the privilege is absolute. It cannot be overridden by some supposedly greater public interest. It can be waived by the person, the client, entitled to it and it can be overridden by statute …, but it is otherwise absolute. There is no balancing exercise that has to be carried out … ”

[34]Given the strength of this principle, I find it hard, if not impossible, to envisage any circumstances where legal professional privilege could properly be directly overridden by an order of the court made in exercise of its case management powers: compare R (Kelly) v Warley Magistrates’ Court

[2007] EWHC 1836 (Admin)

[2008] 1 WLR 2001

. Since, however, privilege has to be claimed, and since the onus is on the person claiming it to make good the claim, the possibility clearly exists that, without waiving privilege, a person may nevertheless indirectly forfeit the right to claim it (if, for example, having been given every opportunity to do so within a reasonable period, he fails to do so). Similarly, a potentially valid claim may fail because it is not made with sufficient particularity, or because the evidence to support it is for some reason not available. Nevertheless, the court should in my view be very wary of allowing a potentially valid claim to privilege, however late it is made, to be indirectly overridden by exercise of a case management power. Otherwise there is a danger of a litigant’s substantive right to legal privilege being forced to yield, indirectly, to just the kind of balancing exercise that the highest authority says is impermissible. Such an approach was in my judgment appropriately reflected in the wording of the Unless Order itself, and the same approach should in my view guide the court in deciding whether to grant relief for the privilege claims now belatedly made in the 221 Schedule.

[35]I find support for this approach in a consideration of factors (a), (h) and (i) in the Rule 3.9(1) checklist. The interests of the administration of justice, while they clearly require prompt and full compliance with court orders, must also recognise that the substantive right of a party to claim legal privilege is afforded a very high level of protection by the law. The effect on the Bank of the failure to comply with the Unless Order is that it finally received an adequate schedule on 25 October, which was itself based on the Revised Schedule of 6 October, whereas the last date for compliance with the Unless Order was 20 September. A delay of this magnitude, although regrettable, is not seriously prejudicial to the Bank in the context of the proceedings as a whole, which are still in their early stages. On the other hand, if relief is not granted, the result would be that Mr Ablyazov and Mr Shalabayev would be prevented from claiming privilege over documents for which the court is now satisfied that a claim (subject to challenge) may properly be advanced. If the documents in question are disclosed to the Bank, the damage may then be irretrievable. It is also important to remember that the claims to privilege are advanced jointly on behalf of all four of the BTA clients, although the Unless Order was made against only two of them. There would accordingly be a real risk of Mr Solodchenko and Mr Zharimbetov losing the right to claim privilege as a result of a procedural default for which they were not personally responsible.

[36]I now turn to the other factors on the checklist.

(a) Promptness

[37]The application for relief was made promptly, once the court had determined at the hearing on 7 October that the schedule served on 20 September did not comply with the Unless Order.

(b) Intention

[38]The Bank submits that, given the manifest inadequacy of the schedule served on 20 September, there must be a real doubt about the genuine nature of the intention of Mr Ablyazov and Mr Shalabayev to comply with the July Order. This is denied by Mr Connerty, who says that they were well aware of the serious consequences of failure to comply with the Unless Order, and had every intention of complying with it. He also says that the difficulty in providing particularity of the documents arose from the fact that Clyde & Co did not have their original files to refer to, and from technical problems with the document management system. I have been critical of the way in which the matter was handled in August and September, and of the manifest inadequacy of the September schedule; but there is no positive evidence before me of an intention to ignore or stultify the July Order, and in the light of Mr Connerty’s evidence I cannot safely infer that there was any such intention. I think that there is also some force in the point made by Mr Doctor that the nature of the obligation imposed by the July Order was inherently imprecise, with the result that views could legitimately differ about the degree of particularity needed to ensure compliance.

(c) Explanation for the failure

[39]In his eighth and tenth witness statements Mr Connerty explained the difficulties which Clyde & Co had encountered in preparing the schedule, and gave reasons why the initial time estimate for completion of the exercise by the end of August was unrealistic. Arnold J was critical of some of this evidence, but he nevertheless agreed to grant two extensions of time. In my view the exercise could and should have been conducted with a greater sense of urgency, and a more realistic appreciation of what compliance with the July Order would require. However, the points which Mr Connerty makes cannot be ignored, and I accept that there is at least a partial explanation for the failure to comply. In particular, I can readily understand that difficulties were caused by the absence of Clyde & Co’s original files, and by the usual disruptions of the holiday season.

(d) Compliance with court orders

[40]Both Mr Shalabayev and Mr Ablyazov have a lamentable history of failure to comply with court orders, and this is undoubtedly a factor which weighs in the balance against the grant of relief. Their respective defaults are already fully chronicled in a number of judgments in the present action and in the Commercial Court, and it is unnecessary to repeat them. It is enough to say that Mr Shalabayev is a fugitive from justice who has been sentenced to eighteen months imprisonment for contempt of court, and that on 27 October I made an unless order debarring him from continuing to defend the action unless he complied by 11 November 2011 with the disclosure obligations in the freezing order made against him on 3 November 2010. As for Mr Ablyazov, his compliance with asset disclosure and other orders made against him in the Commercial Court was found to be so inadequate that the unusual step had to be taken of appointing receivers over his assets in advance of the trial. Mr Ablyazov is also now facing a contempt application in the Commercial Court, with three sample charges due to be heard later this month.

[41]Mr Marshall rightly reminded me in this context of the importance of securing strict compliance with court orders, exemplified by the observations of Sir Swinton Thomas in R C Residuals Limited v Linton Fuel Oils Limited

[2002] EWCA Civ 911

[2002] 1 WLR 2782

at [28]. He also referred me to the unreported decision of the Court of Appeal in Tarn Insurance Services Limited v Kirby

[2009] EWCA Civ 19

, where the Court held that in a case of deliberate and persistent non-compliance with freezing orders made to safeguard proprietary claims, the proper administration of justice requires that, save in exceptional circumstances, sanctions imposed should take effect: see the judgment of Sir John Chadwick at [82]. I have those principles well in mind, and if this were not a case which involved the right to claim legal professional privilege, they would probably be decisive. In the present context, however, it seems to me that the position is very different, and the proper administration of justice requires that a party who advances an adequate claim to privilege in belated compliance with an unless order should, in the absence of exceptional circumstances, be granted relief from a sanction which would otherwise prevent him from making the claim.

(e) Failure of the party or legal representative

[42]Mr Connerty’s evidence on this point is as follows:

“Mr Ablyazov was involved in the process of reviewing the documents in the Boxes for privilege. Mr Shalabayev was not actively involved in the review. Neither of them had any involvement in the preparation of the Original Schedules themselves, and any decisions taken concerning the formulation of the claim to privilege in those Schedules were made by Clyde & Co, not Mr Ablyazov or Mr Shalabayev.”

In the light of this evidence, it seems to me that the failure to comply with the July Order must principally be attributed to Clyde & Co, despite the involvement of Mr Ablyazov in the initial review.

(f) Trial date

[43]The present action has not yet been set down for trial, so the delay of approximately one month in complying with the July Order cannot have any effect on the trial date. Mr Marshall sought to rely in this context on the forthcoming committal hearing in respect of Mr Ablyazov’s alleged contempts, which is due to begin on 28 November. He submits that the delay in obtaining unprivileged documents which were seized under the search order executed in February 2011 may cause the Bank prejudice in relation to the committal application, where the Bank’s final round of evidence is due to be served on 8 November. However, this alleged prejudice appears to me to be entirely speculative. The Bank has now received all but 221 of the approximately 18,000 documents in the relevant boxes, and it is clearly already in possession of sufficient evidence to support the three sample allegations of contempt which will be tried at the forthcoming hearing. Moreover, I was told by Mr Doctor, without contradiction from Mr Marshall, that the three sample charges were selected at a date before the initial deadline for compliance with the July Order.

Conclusion

[44]Having taken all these factors into consideration, I conclude that it would be appropriate to grant Mr Ablyazov and Mr Shalabayev relief from the sanction imposed by the Unless Order. I will therefore grant their application. I hope that the parties will now be able to agree directions for a timetable within which the Bank will make its formal objections to the claims for privilege in the 221 Schedule, there will be an opportunity for the objections to be resolved by agreement, and any remaining disputes will be referred to the court. I would also express the preliminary view that the costs of the application should be borne by Mr Ablyazov and Mr Shalabayev, because the application was necessitated by their failure to comply with the Unless Order, and although I have decided the application in their favour, they have had to seek an indulgence from the court, and the Bank’s opposition, although ultimately unsuccessful, cannot in my judgment be characterised as unreasonable.