Cadogan Petroleum Plc & Ors v Tolley & Ors

A fiduciary’s bribe or secret commission is not ordinarily held on constructive trust for the beneficiary merely because it was obtained through the fiduciary’s position or paid from money originally derived from the beneficiary. A proprietary claim requires the asset to have been beneficially the beneficiary’s property, or to have been obtained by exploiting an opportunity or right properly belonging to the beneficiary. Payments made under contracts that have not been rescinded cease to be the payer’s property. Litigation privilege may arise where litigation is reasonably in prospect and documents are created for its dominant purpose. Privilege may nevertheless be waived where a party deploys detailed accounts of interviews to obtain relief, since fairness requires disclosure sufficient to prevent cherry-picking.

The claimants, companies involved in gas exploration and exploitation, brought claims against former officers and associated companies concerning alleged bribes, secret commissions and other wrongdoing. They sought proprietary remedies and maintained worldwide freezing injunctions. The Vivcharyk defendants applied for summary judgment on the proprietary claims, deletion of the proprietary parts of the injunctions, reduction of the freezing limit, and disclosure of interview records.

The principal issues were whether the alleged payments could be claimed proprietarily in light of Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc, whether litigation privilege protected interview records, whether a shareholder could invoke the shareholder exception to privilege, and whether privilege had been waived.

1. Proprietary claims. The court was bound by the Court of Appeal’s decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Group plc, which required the distinction between exploiting property or opportunities subject to fiduciary obligations and other exploitation of a fiduciary position. A beneficiary has no proprietary claim to money or assets acquired by a fiduciary in breach of duty unless the asset was or had been beneficially the beneficiary’s property, or was obtained by taking advantage of an opportunity or right properly belonging to the beneficiary.
2. The alleged bribes and secret commissions were obtained by wrongdoing, not by diverting an opportunity to obtain a reduced price. Money paid under contracts on an out-and-out basis became the payees’ property at law and in equity. Since the relevant contracts had not been rescinded, tracing the payments back to the claimants did not create a proprietary interest. The proprietary claims therefore had no real prospect of success, and summary judgment was given to the Vivcharyk defendants. The proprietary elements of the freezing injunctions were deleted.
3. Freezing limit. The maximum sum was converted from sterling and reduced to $22 million.
4. Litigation privilege. Privilege applied to the interviews because, by the time they were conducted, litigation was reasonably in prospect and the dominant purpose of the investigations was preparing for litigation. The court would not reject the evidence supporting privilege unless it was reasonably certain that the evidence was incorrect or incomplete.
5. Shareholder exception. Although a company generally cannot assert privilege against a shareholder concerning advice obtained for the common administration of the company’s affairs, the exception does not apply where the company’s interests are adverse. The interviews concerned contemplated proceedings against a person alleged to have conspired with the shareholder. The company could therefore maintain privilege against him.
6. Waiver. The claimants waived privilege by deploying detailed distillations of interviewees’ accounts in support of the freezing injunctions. Fairness required disclosure of the interviewees’ accounts in full so that the court and defendants could assess whether the summaries were accurate and had been cherry-picked. The claimants could redact the note-taker’s own thoughts, comments and symbols. An order was made for disclosure of the interview records.