Houseman: Unethical behaviour was an abuse of process
A solicitor disclosed client information after being deceived into meeting a private investigator working for the other side in major litigation, in the belief he was pitching for a new client, it has emerged.
“He divulged information and offered insights into the perceived strengths and weaknesses of his clients’ position in these proceedings, including aspects of their litigation and settlement strategy,” recounted Stephen Houseman KC [1], sitting as a deputy High Court judge.
“The meetings were secretly filmed and recorded. Those video and audio recordings were provided to the claimants who then applied for summary judgment.”
The unnamed solicitor, who was a newly promoted partner, has been reported to the Solicitors Regulation Authority.
The case concerns allegations that the claimants were deceived into concluding a stock loan agreement in 2021 involving some $415m worth of shares.
The claimants accepted before the court that the methods employed by business intelligence firm BC Strategy UK to obtain the illicit knowledge from the defendants’ solicitor (‘X’) were unethical. But they said they gained no unfair advantage.
Judge Houseman held that the claimants “intended or expected” BC to engage in the kind of unethical conduct which took place. “Such behaviour is anathema to the fundamental basis or premise of civil proceedings,” he said.
X was told that the BC operative (BCO) had a client with a substantial dispute and wanted to interview him with a view to instructing him.
There were three meetings – the first virtually with X in England for about one hour, and the next two abroad in person on a single day. There was a business lunch followed by dinner with alcoholic drinks in a restaurant.
“Through these three meetings, spaced apart as they were, X was skilfully and tenaciously steered by BCO into discussing various aspects of the litigation and settlement strategy of his clients, including by reference to the [worldwide freezing orders made last year].
“This involved persistent questioning designed to elicit insights into [defendant Vladimir Sklarov’s] business model or practices, his de facto control of corporate entities involved in this alleged fraud, the perceived legitimacy or otherwise of such practices, and the merits of the claim and his defence to such claim.”
X told the court that he behaved as he did “out of courtesy or cultural sensitivity and an eagerness to impress”.
The judge went on: “X was lulled into a false sense of confidence and security… He was the victim of a contrived rapport and false sense of confidence that encouraged an excess of candour.
“He was deceived and played for a fool by a skilful and well-prepared interrogator armed with insider knowledge.
“X did all of this as a newly promoted partner in the hope of winning a major client, and potentially building on that professional success down the line. Despite the deception and manipulation practised upon him by BCO, X is responsible for any breach of client confidentiality.”
Judge Houseman rejected the claimants’ contention that X would have provided the same information to a genuine potential new client.
He said the claimants’ then solicitors were unaware that BC had been engaged. “They refused to look at the video files or listen to the audio files. They were promptly replaced by the claimants’ current solicitors [City firm LK Law] who appear to have no such inhibition.”
The claimants then applied for summary judgment. There was, the judge noted, “no attempt” by Andrew Ford, a principal of LK Law, in his witness statement “to hive off the illicit information; on the contrary, it is stitched into the main narrative and analysis where curated extracts from the meeting transcripts are quoted”.
The judge held that the claimants’ unethical behaviour was an abuse of process.
The abuse was compounded by “their receipt of the illicit information, their review and retention of it as illicit knowledge, their new solicitors’ review and retention of it extraneous (and perhaps contrary) to any applicable procedural scheme or regulatory framework, and the uses made of such illicit knowledge to date…
“The fact that these later steps were done on the basis of legal advice from their new solicitors, having satisfied themselves (correctly or otherwise) that any privilege was lost or precluded by iniquity, does not alter the essential characterisation of the claimants’ conduct.”
But the judge said there was not enough time allocated for the hearing to decide the evidential status of the information and whether the claimants’ possession of it was likely to obstruct the just disposal of the proceedings.
This would have to wait for a further hearing, as would the defendants’ cross-applications, including to discharge the freezing orders.
Despite being tempted to do so, the judge said he had decided against striking out, or staying, the claim.
Such a move “would be disproportionate at this juncture in circumstances where there is a decent prospect of the claimants succeeding on their deceit claim at trial. There is a distinct policy in favour of exposing and remedying serious wrongdoing such as fraud”.
The judge also could not “ignore the independent responsibility and culpability of X. He revealed far more than a solicitor in his position needed to or should have done when seeking to impress the representative of a potential major new client.
“This in no way absolves the claimants for their own unethical and inimical behaviour. It does nevertheless feed into the balancing exercise at this stage of the analysis.”
A more proportionate response was for the defendants to forfeit their summary judgment application and pay costs, probably on the indemnity basis.
Judge Houseman granted permission to appeal and cross-appeal, saying “the interplay between competing policies deserves appellate attention”. These included public confidence in the legal profession.
In doing so, he added: “I am not acknowledging that it would be legitimate to challenge my key findings as to the claimants’ conduct or its characterisation. They are essentially questions of fact with elements of evaluation.
“My concern, if anything, is that I may have been too lenient on the claimants in choice of response.”
The defendants have new solicitors too, PCB Byrne.