Court warns of privilege challenge ‘chilling effect’ on investigations

The court held that introducing a general rule that taking steps to set in motion a process to acquire information without consent of the subjects amounted to “iniquity”, such as to prevent any assertion of privilege over communications in relation to the instruction of investigators, would have a “chilling effect” on the ability of a claimant to obtain evidence in fraud cases.

Alan Sheeley, civil fraud and asset recovery expert at Pinsent Masons, said the court decision recognised the potential importance of employing enquiry agents, particularly in complex fraud and asset-tracing cases.

“The judgment recognises that investigation firms and enquiry agents can play an important role in obtaining documentary evidence, especially in circumstances where the alleged fraudster is unlikely to voluntarily provide information or may seek to hide it.

“However, claimants should ensure that they implement robust procedures both in the instruction of such investigators and to segregate potentially privileged documents which might be obtained.”

The ruling came in the latest round of a “long-running and bitter” dispute over the assets of late Russian businessman Oleg Bourlakov, who died in 2021 leaving assets worth more than US$3 billion.

His widow Loudmilla and daughter Veronica (together, ‘the defendants’) are in a legal dispute over the estate of the former cement and energy industry tycoon, with Loudmilla and Oleg having been in the midst of divorce proceedings before his death, amid claims he had tried to hide some of the assets which would have been available.

Loudmila and Veronica issued proceedings in 2020. They brought various claims, including allegations of fraud and dishonesty, against Bourlakov’s sister, Vera Kazakova; brother-in-law, Nikolai Kazakov; and family office manager, Semen Anufriev (together, ‘the defendants’).

The defendants sought disclosure of documents, which they alleged related to large amounts of confidential and privileged information obtained by the claimants and their private investigators without consent – including by way of recording devices installed in Bourlakov’s office and bedroom and email hacking. The defendants contended that the claimants and their lawyers knowingly procured or facilitated such conduct.

The claimants claimed legal professional privilege over the documents sought, but the defendants asserted the “iniquity exception” to privilege, arguing that privilege should not be available for communications relating to the instruction of the investigators as the claimants had engaged in wrongdoing by obtaining the defendants’ information in such a way.

However, Mr Justice Richards rejected the defendants’ position that there is a rule established by case law that it was iniquitous for the Bourlakovas to begin a process which could result in obtaining confidential information without the subjects’ consent.

He held: “…the law will not protect confidentiality in documents that comment on, or reveal, iniquity. A claimant will very seldom be able to show the iniquity is present until trial and will need to obtain documentary evidence to succeed at trial in circumstances where, if the claimant’s allegation is true, the defendant might be expected not to volunteer information and indeed positively to hide it.

“The applicants’ formulation of the rule would risk having a chilling effect on the ability of claimants to obtain evidence in cases of suspected fraud.”

The judge found that while iniquitous acts capable of triggering the iniquity exception do not have to be fraud as such, and can extend to other underhand conduct, the test is whether the relevant relationship is outside the “ordinary run of cases”. The judge gave particular weight to the claimants’ and their lawyers’ belief that the investigators’ activities were being conducted lawfully.

The court found none of the alleged iniquities had been established and dismissed the defendants’ application.

The defendants also alleged that the claimants and their lawyers engaged in “privilege hunting” – obtaining privileged information by dishonest methods – and intended the investigators to access the defendants’ privileged communications. However, the judge did not make such a finding as, although the investigators received privileged information during the course of their work, this information was part of the documents obtained by the investigators generally.

The Bourlakova judgment can be contrasted with comments made in another recent case heard by the Court of Appeal. Here, the claimants hired investigators to target the partner of a law firm in a “covert sting operation”. The investigators pretended to represent a potential new client and manipulated the lawyer into revealing the defendants’ litigation strategy. The Court of Appeal held that the claimants’ “privilege hunting” operation was an abuse of process that “should have no place in litigation in the courts of England and Wales”. The Court of Appeal found that such dishonest conduct is a civil wrong and may even be a criminal offence.

Natasha Fons, a civil fraud expert with Pinsent Masons, said those in future cases should still monitor how information is gathered despite the Bourlakova judgment.

“In assessing whether a hiring party’s conduct is iniquitous, the court will consider whether their actions fall outside the ordinary run of cases and their beliefs as to the legitimacy of their investigator’s actions,” she explained.

“Any potential wrongdoing by the investigator will not necessarily result in a finding that the commissioning party’s actions were iniquitous. However, commissioning parties should still ensure that they understand the manner in which their investigator will obtain any information and keep this under review in case the parameters of the investigation change.”