Aoot Kalmneft v Denton Wilde Sapte (a firm)

Factual and Procedural Background

The Plaintiff, an oil producing company incorporated under the laws of the Republic of Kalmykia ("Plaintiff"), initiated proceedings against the Defendant, a well-known firm of solicitors in London ("Defendant"), seeking disclosure of documents held by the Defendant as a result of acting for Amerco International Oil Limited ("Amerco"), a company registered in Guernsey. Amerco was struck off the Guernsey register for failing to file annual returns, leaving the Defendant unable to obtain instructions from Amerco regarding disclosure. The Defendant adopted a neutral stance, appearing only to ensure all relevant matters were before the court if disclosure was ordered, which would override Amerco's legal professional privilege.

The Plaintiff's claim relates to complex commercial arrangements involving oil supply contracts and prepayment agreements between the Plaintiff, Amerco, and other associated entities, including a Swiss commodity dealer ("Glencore"). Significant sums prepaid by Glencore for oil to be supplied by the Plaintiff through Amerco and another company were allegedly diverted to unrelated parties without the Plaintiff’s consent. The Plaintiff seeks disclosure from the Defendant to identify those responsible for the diversion and to assist in tracing and recovering the monies.

The court granted the Plaintiff’s application for disclosure and reserved reasons, which are set out in this judgment.

Legal Issues Presented

1. Whether the Defendant, as a third party involved in the tortious acts facilitating wrongdoing, is under a duty to disclose documents to the Plaintiff under the Norwich Pharmacal jurisdiction.
2. Whether disclosure can be ordered notwithstanding the existence of legal professional privilege, particularly given the client (Amerco) no longer exists.
3. The scope of the court's discretion in ordering disclosure balancing the Plaintiff’s interests against the Defendant’s and former client’s interests, including privacy and client confidentiality considerations.
4. Whether any restrictions should be imposed on the use of disclosed documents, particularly concerning ongoing arbitration proceedings.
5. Whether disclosure should extend to documents where a specific individual associated with Amerco was the client.

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff seeks disclosure to identify parties responsible for diverting over $10 million of prepayments made by Glencore, which were not received by the Plaintiff.
• Disclosure is necessary to trace and recover the diverted monies.
• The Plaintiff argues that the Defendant was involved in facilitating the wrongdoing by arranging Amerco's incorporation and witnessing relevant agreements.
• The Plaintiff contends that legal professional privilege should not protect documents created in furtherance of a fraud.
• The Plaintiff submits that disclosure should not be restricted solely to defending arbitration but may also assist in identifying wrongdoers and tracing assets.
• The Plaintiff requests disclosure of documents where a particular individual, a former executive of the Plaintiff and associated with Amerco, was the client.

Defendant's Arguments

• The Defendant adopts a neutral position on disclosure, appearing solely to ensure the court is fully informed if an order is made.
• The Defendant notes that the disclosure sought is broader than in previous cases such as Norwich Pharmacal.
• The Defendant questions whether disclosure can be ordered to assist the Plaintiff in defending arbitration claims, suggesting this may fall outside the Norwich Pharmacal principles.
• The Defendant asserts that Amerco was their client and that legal professional privilege applies, but acknowledges that Amerco no longer exists, reducing potential harm from disclosure.
• The Defendant does not oppose extending disclosure to documents where the individual was the client, given the circumstances.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the equitable jurisdiction to order disclosure against third parties under the Norwich Pharmacal principle and the related line of authority exemplified by Bankers Trust Co v Shapira. It recognized that the Defendant, by arranging Amerco’s incorporation and witnessing key agreements, became mixed up in tortious acts facilitating the diversion of funds.

The court found that the monies prepaid by Glencore for oil to be supplied by the Plaintiff but diverted without consent were held in trust and their misapplication constituted a prima facie fraudulent breach of trust. This justified ordering disclosure against the Defendant to assist in identifying wrongdoers and tracing diverted funds.

Legal professional privilege was considered, with the court noting that privilege does not protect documents created in furtherance of fraud. Given that Amerco no longer exists, the court found that removing privilege would not harm the former client and would assist the Plaintiff’s legitimate interests.

In exercising its discretion, the court balanced the Plaintiff’s interest in disclosure against the Defendant’s and former client’s interests in privacy and confidentiality. It concluded that the invasion of privacy and breach of client confidence were minimal and outweighed by the potential benefits to the Plaintiff.

The court rejected restricting the use of disclosed documents solely to the pursuit of diversion-related claims, allowing their use in related arbitration proceedings due to the close interrelationship between the issues.

Finally, the court extended the disclosure order to include documents where the individual associated with Amerco was the client, to ensure the order’s effectiveness in uncovering relevant information.

Holding and Implications

The court GRANTED the Plaintiff’s application for disclosure against the Defendant, including documents where the individual associated with Amerco was the client, notwithstanding claims of legal professional privilege.

The direct effect is to compel the Defendant to disclose documents that may assist the Plaintiff in identifying wrongdoers responsible for diverting over $10 million of prepayments and tracing the diverted funds. The court allowed the Plaintiff to use these documents in related arbitration proceedings.

No new legal precedent was established; rather, the court applied established equitable principles concerning disclosure against third parties involved in facilitating wrongdoing and the limits of legal professional privilege in fraud contexts.