High Court removes privilege in fraud claim involving top law firm

DLA Piper: Took neutral position on application

Legal professional privilege should not apply in a case where there is a “very good arguable case” that a client used global firm DLA Piper’s services to assist a fraud, the High Court has ruled.

The judgment did not suggest that DLA was knowingly involved in the fraud alleged against Harvey Boulter and his company, Porton Capital Ltd (PCL).

The firm took a neutral position before Nicholas Thompsell, sitting as a deputy High Court judge.

The claimants are start-up company Enigma Diagnostics Ltd and its liquidators. They allege that Mr Boulter arranged for shares in Enigma to be issued to PCL, which then sold beneficial interests in them at a higher price to investors while remaining on the share register as nominee.

The claimants allege investors were misled into thinking the proceeds would go to Enigma and other companies that were in the development stage and in need of capital – less commission – when in fact PCL retained around £61m of the £103m raised.

The claimants are also making claims against DLA Piper and Birmingham corporate partner Charles Cook over their involvement in the arrangements.

They applied for an order that there was no privilege in respect of communications between DLA and PCL based on the so-called iniquity exception, and that the firm should disclose all documents and notes of communications passing between it and PCL, as well as between either of them and the other companies and investors.

PCL, a Cayman Islands company, has since been dissolved. Judge Thompsell said the application was particularly important because DLA was the only party that had retained substantial contemporary documentation.

He held that, while “holes can be picked” in the individual pieces of evidence supporting the fraud claim, “taken as a whole I consider that the evidence put together is impressive and compelling that PCL was systemically telling investors that the monies paid to DLA Piper would go to Enigma or the other Porton portfolio companies whose shares were being purchased, whilst the truth was that it was in fact trading for its own purposes and kept a substantial proportion of the money, over 60% overall, in the case of Enigma”.

Mr Boulter had been given “ample opportunities” to answer the allegations but had chosen not to attend or be represented at the hearing. The court was entitled to take this into account in judging the credibility of the case on investor fraud, the judge said.

“This body of evidence in my view is sufficient to provide a very good arguable case that DLA Piper’s services were being used by PCL to assist PCL in a fraud on investors,” Judge Thompsell concluded.

“As such, I accept it as meeting the standard of demonstrating ‘iniquity’ so that the court should conclude that PCL has no right to legal professional privilege in relation to material held by DLA Piper in providing its legal services to PCL in relation to sales of shares made using the services of DLA Piper.”

A DLA Piper spokesman said: “DLA Piper is committed to upholding the highest professional standards. Lawyers have an ethical duty to uphold a client’s privilege, even if that client no longer exists.

“As such, DLA Piper could not disclose Porton’s privileged documentation without first receiving the court’s guidance via this hearing. The judge acknowledged that we acted in the correct manner and that we have set a good precedent.”

He said DLA encouraged Enigma to make the application, regarding it as an important issue to be ruled on.

During the hearing, Judge Thompsell reportedly said: “I would also say that I think that DLA Piper has acted in absolutely the correct manner in the way that it has dealt with this application.

“I think it was right to hold itself as effectively a neutral party whilst pointing out any flaws in the evidence that was being put forward and, to the extent that that sets a precedent, I think it is a good precedent to set.”

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