Cadogan Petroleum Plc & 9 Ors v Mark Tolly & 10 Ors (2011)


On the facts as pleaded and in light of the decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) (2011) EWCA Civ 347, (2011) Bus LR 1126, proprietary claims based on an allegation that a company group's former chief operating officer had accepted bribes or secret commissions in the course of various company transactions had no prospect of success.


The applicants (V and X) applied for certain proprietary claims made against them by the respondents (C) to be disposed of summarily and related parts of freezing injunctions deleted, for the maximum sum specified in the remaining freezing injunctions to be reduced, and for an order that C disclose the records of certain interviews. C were a group of companies which explored and exploited gas reserves in the Ukraine. V had been C's chief operating officer between 2007 and 2009, and X was the company he owned and operated. C had issued claims against several defendants, including V and X, relating to transactions with various companies. In three of those claims, the "Smith, GPS and Ribelant claims", C alleged that bribes or secret commissions had been paid to V and other defendants. In the fourth claim, C complained about expense claims made by V in relation to certain Ukrainian properties owned by him and rented to C. When the proceedings were issued, C was granted freezing injunctions against V and X subject to a £15 million limit. After the other defendants either settled or failed to acknowledge service, V and X were the only defendants actively defending C's claims. V contended that the recent decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) (2011) EWCA Civ 347, (2011) Bus LR 1126, which established that where an agent or employee accepted a bribe or secret commission his principal or employer did not necessarily beneficially own the bribe and could not claim proprietary ownership of it, rendered the Smith, GPS Claims and Ribelant claims unsustainable. They argued that they should therefore be struck out or summary judgment given on them, and that the proprietary elements of the freezing injunctions in relation to those claims should be deleted. V submitted that the maximum sum specified in the freezing injunction should be expressed in US dollars instead of sterling and reduced. Whilst V's requests for C's specific disclosure of various documents had been agreed and disposed of, there remained at issue the records of interviews with eight of C's staff in May and June 2009 which V argued he was entitled to see. C opposed that application on the basis that litigation privilege applied. V submitted that litigation privilege never arose because the conditions for it were not satisfied, that he was, in any case, entitled to see privileged material as a shareholder in the first claimant company, and that any privilege had been waived by C referring to the interviews when applying for the freezing injunction.


(1) An asset or money which a fiduciary had acquired in breach of his duties to the beneficiary or which he could not have obtained if he had not enjoyed his fiduciary position would not necessarily be held on trust for the beneficiary of the fiduciary's duties. The beneficiary could not claim a proprietary interest unless an asset or money was or had been beneficially the property of the beneficiary or the trustee had acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary, Sinclair followed. On the facts as pleaded, C had no real prospect of succeeding against V on their proprietary claims in respect of the Smith, GPS and Ribelant claims. Since there was no other compelling reason why the claims should be disposed of at trial rather than now, the court gave summary judgment in V's favour with regard to those claims. The proprietary elements of the freezing injunctions were also deleted (see paras 23, 39 of judgment). (2) Changing the specified maximum sum in the freezing injunction to be expressed in US dollars was uncontroversial and it was appropriate to reduce it only by a modest amount to $US 22 million (paras 40-45). (3) Litigation privilege related only to communications when litigation was pending or in contemplation, and only those made for the sole or dominant purpose of obtaining legal advice or conducting that litigation, West London Pipeline & Storage Ltd v Total UK Ltd (2008) EWHC 1729 (Comm), (2008) 2 CLC 258 applied. In the circumstances, litigation privilege extended to the interviews. Whilst a company was not generally entitled to assert privilege against a shareholder, that principle did not apply where the interests of the company and the shareholder were adverse, Arrow Trading & Investments Est 1920 v Edwardian Group Ltd (No2) (2004) EWHC 1319 (Ch), (2004) BCC 955 considered, Woodhouse & Co Ltd v Woodhouse (1914) 30 TLR 559 CA followed. Since the interviews had been conducted in contemplation of litigation against a person whom C alleged had been engaged in a conspiracy with V, the interests of C and V were adverse. V could not, therefore, insist upon seeing the interview notes as a shareholder. Privilege in the interviews had, however, been waived since they had not merely been referred to in applying for the freezing injunction but deployed to further C's position. Fairness therefore required the records of the interviews to be disclosed, although C would be permitted to redact such parts containing the note-taker's own thoughts or comments, either in words or by means of underlining, ringing or symbols (paras 49, 54-56, 59-60, 67-68).

Applications granted