Lee Victor Adlesee and the others listed in the Schedule annexed to the Amended Claim Form v Dentons Europe LLP
| Jurisdiction | England & Wales |
| Judge | Master Clark |
| Judgment Date | 03 March 2020 |
| Neutral Citation | [2020] EWHC 238 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2016-001537 |
[2020] EWHC 238 (Ch)
Master Clark
Case No: HC-2016-001537
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Thomas Munby (instructed by Forsters LLP) for the Claimants
William Flenley QC (instructed by Clyde & Co) for the Defendant
Hearing date: 27 January 2020
Approved Judgment
This is the approved judgment handed down on the above date and is to be treated as authentic.
Issue for determination
This is my judgment on the issue (identified in the claimants' application notice dated 7 September 2018) of whether the so-called iniquity exception to privilege applies to the files held by the defendant for its former client, Anabus Holdings Limited (“Anabus”).
The order that the claimants seek is that the defendant give disclosure and inspection, and the parties shall proceed for all purposes in this claim, on the footing that the relationship between the defendant and Anabus is not subject to legal professional privilege.
The defendant's stated position is that it is neutral in the application. Nonetheless, its counsel made submissions both as to the applicable law, and as to the inferences that could properly be drawn from the available documents.
Parties and the claim
The claimants are about 240 investors in an investment scheme operated by Anabus, under which investors were invited to invest in gold dust (“the scheme”). The scheme was promoted by Anabus to investors from spring 2010 through an “agent” and a network of “introducers”. The scheme closed on 31 October 2010 and, despite later promises of payment, left the majority of the investors unpaid. The claimants say the scheme was fraudulent, and that they lost (collectively) over €6.5 million.
The defendant is an English LLP which previously operated as an SRA-regulated firm known as Salans LLP. It acted for Anabus during the life of the scheme.
The claim in summary (which is sufficient for present purposes) is that the defendant recklessly and/or negligently enabled the scheme, and induced many of the individual claimants to invest, by affording the scheme apparent respectability by endorsing it as Anabus' legal adviser. Particular reliance is placed on a letter on the defendant's notepaper dated 18 May 2010 addressed “To whom it may concern” (“the 18 May 2010 Letter”).
Participants in the narrative
Anabus was incorporated under the laws of Cyprus on 2 September 2009. Its shareholders and directors were Craig Johnson and Sofoklis Georgiou. Mr Johnson is alleged to be Anabus' “driving force”. It was dissolved on 11 June 2016.
LLPP Insure Limited (“LLPP”) was an English company (incorporated on 11 January 2007) which held itself out as trading in ATE insurance. The de jure directors of LLPP were Tanya Kalugina and John Stephenson (they do not feature prominently in the correspondence before me). Its equal shareholders were Paul Ubsdell and Mark Britain. LLPP went into liquidation on 18 November 2013.
Mr Ubsdell was made bankrupt in 2005 and disqualified as acting as a director for 5 years from 3 November 2005. In February 2011, he pleaded guilty in the US District Court of New Hampshire to conspiring by fraudulent means (the “Canada MTNs” – see para 115 below) to obtain money and property from an investment bank. On 24 January 2014 he was convicted of dishonesty offences in the Chelmsford Crown Court.
Both Anabus and LLPP were clients of the defendant. The persons who dealt with them at the defendant included:
• Kevin Heath – a partner
• Robert Courtneidge – a senior consultant
• Jonathan Denton – a partner until November 2009, then later “legal counsel” at LLPP
• Katerina Palickova – a senior associate
LLPP's liquidators have waived privilege in respect of disclosable documents held by the defendant, and some of those documents were included in the evidence before me.
Mr Courtneidge was also a joint shareholder in and director of (together with a solicitor called Bobby Gill) a company called Gill & Courtneidge Wealth Limited.
The “agent” who acted on Anabus' behalf in promoting the scheme to “introducers” was My Assets Investments Limited (“MAI”), whose directors and sole shareholders were Chris Metalle and Chris Richards. One of the introducers was Credible Investments Limited (“Credible”), whose directors and sole shareholders (and through whom it acted) were Simon Ward and David Orrey.
The scheme
The scheme was promoted to investors by materials (produced in March and May 2010), including a brochure entitled “Gold commodity trading for the small investor” and a document entitled “Your Questions Answered” (together “the Brochures”). The key features relied upon by the claimants are set out below.
The process for trading in gold
The description of how Anabus traded in gold is in “Your Questions Answered”:
“The process is really very simple.
1. There are contracts with various mines, all of which have been thoroughly researched to protect against fraud and non-performance. The contracts generally extend to a minimum of one year to fix the price. The contract also stipulates the nature of the financial instrument the mine requires under the deal.
2. The gold is collected by Brinks, the security transportation company who provide insurance for the gold whilst in transit to the refinery.
3. Brinks deliver the gold to the specified refinery (one of three at present).
4. The refinery refines the Gold dust into bullion.
5. The bullion is sold directly from the refinery onto the interbank market.
6. The company is paid direct from the refinery and pays out to investors accordingly.”
The “contracted mines” and refineries were not identified, but said to be respectively in Southern Africa and in Dubai/Belgium. It was said that
“The Trading company constantly monitors the inter-bank price of Gold with the aim of maximising the return above the purchase price”.
In “Your Questions Answered”, the question “How large are individual trades currently” receives the answer
“The company currently trades a minimum of 500kg of gold (up to 1,000kg) per trade. This will increase as more supply lines are added.”
At the minimum likely price of $20,000 per kg for “good” gold dust, each trade would therefore have involved committing at least US$10–20 million.
Anabus' recent performance
The Brochures included a chart setting out trades completed by Anabus starting in December 2009. These numbered 8 by the end of March 2010 and 13 by mid-May 2010, each supposedly returning between 15% and 20% profit.
Level of Return
In “Your Questions Answered”, the question “Based on the law of compounding (assuming 15% return), the initial amount invested should double every 5 trades, which effectively means it will quadruple after 10 trades. So £25k should become £100k within 4–5 months – is that correct?” was answered “Yes, you are correct. We have tables available showing this on varying investment amounts. …”.
In addition, such returns were said to be available over an extended period. The question
“What's the longevity of this investment? Obviously, it has to have a ceiling at some point and can't continue to roll over as the sums would be too high. What happens when you hit capacity?”
was answered
“Our contracts with mines go up to 3 years, but unless the market falls apart or drops through the floor, we will continue, as we always are, looking (on the ground) for new supply and contracts. Rolling over is not a problem and you can just keep rolling.…”
Use of investors' money
It was explained that investors' money was not in fact to be expended. Rather,
“A financial instrument similar to a letter of credit is used which guarantees payment to the mines. This means the investor's money does not get touched with payment for the AU only being made once it has been refined, because dust loses weight when being refined and payment is only made for Pure 999 AU. Therefore, there cannot be payment in advance.…”.
In “Your Questions Answered”, the question “I understand that investor monies are only used as a line of credit? If that's the case, how is the client protected?” was answered
“The investor monies sit in the account and are used in some cases to help in providing additional proof of funding which is sometimes required by mines. This money in the accounts is used along with the company's larger investor (multi million dollars) to provide any form of Proof of Funds documentation that does not involve blocking funds”.
Risks to investors
The investment was said to be essentially risk-free. It was said that gold prices would have to fall 50% (or $13,000 per kg) overnight for money to be lost on an individual trade. But even in this case there was said to be no risk to investors. The question
“What protection is in place for the investor to ensure he/she won't lose money?”
received the answer
“The company has insurance against things going wrong – errors in the buying price or a substantial market crash (say, greater than 50%). If the company incurs a loss, then these insurances kick in to cover investors.”
Similarly, the question “What happens if the company goes bust?” was answered
“Should the company go into administration, the money in the clients' accounts is automatically returned to them. Client money is insured as outlined above”.
The Brochures (in keeping with their title) were expressly targeted at the “smaller investor”, with statements such as
“These trades have been carried out for many years by top commodity firms in London and New York and they have been stripping large amounts of profits from these...
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