Case No: 01X03154
 
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Neutral Citation No: [2002] EWHC 1344 (Q.B.)

Date: 4 July 2002

Before :

THE HONOURABLE MR JUSTICE EADY
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  Between :

	WALSH AUTOMATION (EUROPE) LIMITED
(incorporated in Eire)	Claimant	
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	(1) HOWARD BRIDGEMAN
(2) ANDREW DAVID BRIDGEMAN
(3) BRIDGEMAN TECHNOLOGY LIMITED
(4) BX LIMITED	Defendants	

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Neil Kitchener (instructed by D J Freeman) for the Claimant
Charles Samek (instructed by BP Collins & Co) for the First Defendant

Hearing date : 14 June 2002
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Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

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The Hon. Mr Justice Eady

Mr Justice Eady:

1.	There are two matters now before the court:
(1)	An appeal from part of an order made by Deputy Master Nussey on 21 February 2002, whereby he refused the Claimant’s application under CPR 31.14 and 31.15 and declined to order against the Defendants disclosure of documents evidencing or containing legal advice referred to in paragraph 17 in each of the defences of the First and Second Defendants;
(2)	An application by the Claimant issued at the end of April pursuant to CPR 31.12 for disclosure of:
a)	all documents relating to the incorporation of the Third and Fourth Defendants;
b)	all documents relating to legal advice sought or received in relation to the incorporation or the commencement or carrying on of the business carried on by the Third and Fourth Defendants or their corporate governance;
c)	all documents relating to any dealing with any interest in the shares of the Third and Fourth Defendants; 
d)	all documents relating to any legal advice sought or received by the Defendants in relation to any loans by the First Defendant to the Third and Fourth Defendants and/or to any interest (whether as security or otherwise) that the First Defendant might have in the shares of the Third and Fourth Defendants;
e)	all documents relating to any legal advice sought or received in relation to the declaration of trust referred to in paragraph 17 of the defences of the First Defendant and the Second and Third Defendants.
2.	There was something of a false start because it appeared that Mr Samek for the First Defendant was inviting me not to hear the April application because it should properly have gone before the Master in the first instance and, in any event, he was submitting it should not be heard until after a pending application is dealt with, scheduled at the moment for 23-24 July, which might (he says) reveal  the Claimant’s hands to be less than clean, thus potentially inhibiting the court from exercising discretion in its favour, since an order for specific discovery would historically have been regarded as an equitable remedy.  Fortunately, these matters were soon put to one side and I heard argument as to the merits of both the appeal and the fresh application on 14 June.
3.	The case the Claimant is putting forward, which gives rise to the present issues, is as follows.  It is an automation technology company.  Until 12 June 2001 the First Defendant, Howard Bridgeman, was managing director of the Claimant and naturally owed the usual contractual and fiduciary duties which that would entail.  Mr Bridgeman’s son, Andrew Bridgeman, is the Second Defendant.  He was employed as a consulting engineer by the Claimant until 29 September 2001.  The Third and Fourth Defendants are corporate entities which are alleged by the Claimant to have been set up by the First and Second Defendants for the purpose of diverting business opportunities from the Claimant.  At all material times those two companies have carried on business in competition with the Claimant.  It is part of the First Defendant’s case that the Third and Fourth Defendants were Andrew Bridgeman’s companies and it is not accepted that Mr Howard Bridgeman played the significant role in setting them up attributed to him by the Claimant.  It is submitted by Mr Kitchener on behalf of the Claimant that the extent and nature of Howard Bridgeman’s involvement in the companies, in the period leading up to 12 June 2001, are central issues in the case.  Before me the only Defendant to be represented was Mr Howard Bridgeman, for whom Mr Samek appeared.
4.	My attention was drawn to a draft business plan of 19 May 2000 referring to a body called the “Bridgeman Group”.  It is accepted that Mr Howard Bridgeman assisted in the preparation of that plan and that it incorporates his ideas as well as those of other people.  
5.	In that document, which was contemplating the incorporation of the Bridgeman Group in July 2000, Mr Howard Bridgeman was being described as the “founder”.  It also contains the following passage:
“He is supported by Suzanne Yellowlees, Head of Finance and Andrew Bridgeman, Head of Technology.  Both these directors have worked as Howard Bridgeman’s Board of Management for the last three years”.
6.	It also identified a number of “key elements” in the corporate strategy, which included “an already identified list of clients”.  It appears from other documents that a significant number of those clients were at the time, or had until recently been, clients of the Claimant.  Suzanne Yellowlees was also an employee of the Claimant at the material time.
7.	Other matters emerging from the plan are that Howard Bridgeman, Andrew Bridgeman and Suzanne Yellowlees are identified as constituting the proposed board of the Bridgeman Group.  They are also described as “Investors/Founders”.  The function of the proposed group was going to be that of “providers of consultancy and implementation of applications to the Manufacturing and Telecommunications Industries”.
8.	The Third Defendant (“BTT”) was in fact incorporated on 31 August 2000 and was staffed by former employees of the Claimant.  Its business has been undertaken exclusively for the former clients of the Claimant and as a subcontractor for the Claimant pursuant to arrangements negotiated by Howard Bridgeman on the Claimant’s behalf.  
9.	Very little attention was focused at the hearing on the Fourth Defendant (BX).  All I need say, for present purposes, is that it was incorporated on 30 April 2001 and that Howard and Andrew Bridgeman became directors the same day.  It has taken over some of the business of BTT.  It is the Claimant’s case that a possible corporate opportunity that should have been available to the Claimant was exploited by BX.  In that connection, Mr Howard Bridgeman flew to Texas to visit an American corporation called Exterprise in January 2001.  Yet the expenses were charged to the Claimant.
10.	It is accepted by Mr Howard Bridgeman that he did at least partially fund BTT by providing a facility of £50,000, of which only £20,000 had been drawn down.  I was shown a draft loan agreement dated 25 September 2000 which clearly contemplated a loan by him to the company and which contains the sentence “the loan will be unsecured”.  Mr Kitchener queried why the Claimant’s managing director would be contemplating making a substantial loan, secured or unsecured, to a company setting up in competition with its own business.  Another interesting document, however, is a declaration of trust entered into on 22 September 2000 (i.e. three days before the date of the draft loan agreement).  It was obtained as a result of a search and seizure order granted by McCombe J.  Under this Andrew Bridgeman holds the majority of his shares as a bare trustee for Howard Bridgeman, identified as “the owner”.  It is said (with obvious cogency) that the objective was to give Howard Bridgeman ownership and control over BTT without his appearing on the register as a shareholder.
11.	It was originally pleaded at paragraph 17 of each of their respective defences by the First to Third Defendants that the declaration of trust was executed “on legal advice” for the purpose of securing what was otherwise an unsecured loan from Howard Bridgeman to BTT.  It was argued below that those averments constituted a waiver of privilege in respect of the advice referred to.  The Claimant’s case in this respect is that the whole object of referring to “advice” in paragraph 17 was to refute the suggestion that the declaration of trust was conceived as part of an illegal project.  It is in my view difficult to construe it otherwise.
12.	Meanwhile, the Defendants have served amendments striking out the words “on legal advice”, so that it could not any longer be said that any such “advice”, if written, is referred to on the face of their statements of case ; nor that reliance is placed upon the legal advice (oral or written) for any purpose in the proceedings.  
13.	It is the Claimant’s case, however, that whether or not the advice is expressly referred to on the face of a pleading it forms a central part of the case.  It contends that the Defendants were setting up a scheme the purpose of which was to divert business from it in breach of the contractual obligations it was owed.
14.	It is submitted that it is unlikely that the purpose of the declaration of trust (irrespective of legal advice) was as pleaded in paragraph 17. It made no reference to Howard Bridgeman’s interest being a security interest and gives him full control over BTT.  His interest is expressed to be in 75 out of 90 shares, which would surely suggest that the split was to represent the respective interests in the company of father and son.  One would expect a security arrangement to relate to the totality of the son’s shares.  Moreover, as I have already recorded, the loan was described in the draft loan agreement as “unsecured”.  Mr Kitchener also highlighted the inherent oddity of a lender being given a security interest in the shares of a debtor (since a creditor would take priority).  Against this background, Mr Kitchener described the declaration of trust as a “badge of fraud”.
15.	On these critical matters, it is submitted that disclosure of the advice, or any record of it, would throw considerable illumination.  Even if privilege has not been waived already, I am invited to rule that the privilege cannot be maintained in those circumstances.  My attention was invited to the legal principle exemplified in Gamlen v. Rochem [1983] R.P.C. 1.  That is to say, privilege will not be upheld if the relevant document came into being as a step in a criminal or illegal proceeding.  Where a breach is alleged against a former employee of a duty of fidelity or confidence, disclosure may be ordered of documents passing between the defendant and his legal advisers relating to the setting up of companies through which it was proposed to operate.
16.	In this context, “fraud” tends to be used in a sense that will embrace broad iniquity and would cover allegations of the kind made by the Claimant here.  It is by no means necessary to demonstrate that the legal adviser was aware of the illegal purpose.
17.	Where such an application is made at the interlocutory stage, as in the present case, the court will only displace the privilege if a strong prima facie case of “iniquity” has been made out.  Mr Kitchener submits that in the light of the facts already rehearsed he can surmount that hurdle.
18.	Furthermore, it seems to be accepted that with effect from 31 March 2001 Howard Bridgeman was made chairman of an entity described as “the Bridgeman group”.  This is said by Howard Bridgeman in his pleaded case to comprise BTT and BX Ltd.  From as early as October 1999 various persons including Andrew Bridgeman were communicating with Howard Bridgeman through his e-mail address howardbridgeman@bridgemangroup.com.  He was also, according to the evidence, conducting a “recruitment drive” for BTT.  He does not admit, however, that he was doing so other than in relation to the telecommunications field.
19.	It is nonetheless accepted that Howard Bridgeman gave advice on setting up a company, managing books and accounts, managing cash flow, collecting money from debtors, funding and fund-raising, recruitment and the interviewing of candidates.
20.	While acting on the Claimant’s behalf Howard Bridgeman also arranged for BTT to act as its subcontractor in relation to work to be carried out for Merck, thus giving rise to what is said to be an obvious conflict of interest.
21.	Reliance is also placed upon an e-mail of 27 November 2000 in which Howard Bridgeman observed to a BTT recruitment agency that:
“The bottom line is that we have a company where everyone is well rewarded by sharing in the success that that we jointly create”.
22.	The argument before the Deputy Master was not based on the “fraud” exception but rather upon the alleged waiver in the defences.  The court rejected that argument on the basis that the pleading put in issue not the content of the advice but only its effect (a borderline sometimes difficult to define).
23.	It was after the decision that Howard Bridgeman decided (no doubt “on advice”) to abandon reliance upon “legal advice” for any purpose – that is to say, whether for effect or content.  Thus, it is said that the appeal (for which Gray J granted permission on 19 March 2002) is now “sterile”.  A draft amended defence was sent to the Claimant on 18 April.
24.	It may be said that the deletion was to some extent at the invitation of the Claimant, since its skeleton argument in support of the application for permission to appeal (dated 27 February 2002) referred to the judgment of Lord Denning M.R. in Buttes Oil Co v. Hammer [1981] 1 Q.B. 223, 246, where attention was drawn to the option of striking out a reference to documents in a pleading if it was decided to assert privilege in respect of them.  The existence of such an option would naturally be predicated upon the supposition that a once and for all waiver had not already taken place by virtue, merely, of the inclusion of a reference to the advice in a pleading.  What the Master of the Rolls had in mind, as he made clear, was a situation where the reference to advice had been inadvertent.
25.	Since there is a pending application on the issue of non-disclosure which I am not invited to address, I propose now to confine myself to dealing, at least substantively, with the recent application based on the “fraud exception”.
26.	Lord Denning M.R. in Buttes, also on page 246, suggested that the test should be whether there was such an obvious fraud (albeit, no doubt, in the broad sense) that the relevant party should not be allowed to shelter behind the cloak of privilege.  In that case neither the judge nor Lord Denning was prepared so to hold.
27.	I should, it seems to me, apply the same test.  In the light of the history I have recited, I have come to the conclusion that the stringent test has in this instance been passed, and I propose to make the order sought by the Claimant giving disclosure of all the categories of documents identified including any relating to legal advice.  I do not feel inhibited from taking that course because of the “clean hands” doctrine.  The forthcoming non-disclosure application will be dealt with on its own merits, but I do not see why it should have any impact on the disclosure obligations of the First Defendant.  
28.	I am also invited to deal with the costs of the hearing before the Deputy Master and down to the date of the abandonment of the words in paragraph 17 of the defence.  Subject to any further submissions, I propose to leave the order undisturbed (i.e. costs in the case).  The Claimant has succeeded in its present application and could, therefore, have avoided those costs being incurred by putting its case on the “fraud exception” in the first place.  That is a conclusion arrived at with the benefit of hindsight but it seems to me none the worse for that.