Scher: Iniquity exemption triggered
A City law firm will be able to fully defend itself from serious allegations in the High Court after a judge held that its former clients cannot claim legal professional privilege (LPP) because of the iniquity exemption.
Deputy Master Scher said a “prima facie case” of iniquity existed because of Vladimir Gusinski’s decision to avoid the New Media Group, which he controlled, repaying the sums owed to a bank and “a sufficiently dishonest or underhand scheme which allowed him to achieve that”.
The judge said the bank, East-West United Bank SA, incorporated in Luxembourg, applied for an order that the iniquity exemption applied, partly to enable Mr Gusinski’s former law firm, GSC Solicitors, and consultant solicitor Barry Samuels, who had day-to-day conduct of the matter, to plead their cases fully in the main proceedings.
GSC and Mr Samuels took a neutral position on the application, which the judge said was “quite appropriate”, given that any privilege belonged to their former clients.
The bank provided a $75m credit facility to New Century Distribution (NCD), a subsidiary of New Media Group, in 2013.
In January 2018, it served an acceleration notice, seeking immediate payment of nearly $10m. This was not done and none of the five other group companies that had guaranteed the loan responded either.
NCD did, however, obtain a temporary insolvency moratorium from the Swiss courts.
The judge said: “On the face of it, this was in order to restructure its indebtedness and pay its creditors. The claimant says that this moratorium was sought for an ulterior and improper purpose, namely to reduce the prospects of enforcement by the claimant.”
The bank then sought an arbitration at the London Court of International Arbitration involving the guarantors.
Around the same time, another group company was awarded $5.2m in an unrelated High Court action, which was paid into GSC’s client account.
Mr Gusinski, on behalf of the guarantor companies, told the arbitral tribunal that this money was specifically earmarked for repayment to the bank and the tribunal ordered payment of $4.75m from it.
The bank claims that Mr Gusinski deliberately misled the tribunal and instead most of the money was transferred to New Media Group’s parent company, some to the borrower and some to GSC itself as fees.
Deputy Master Scher said: “The vast majority of the $4.75m is no longer within the jurisdiction, or easily available to the claimant to satisfy the judgment debt enforcing the arbitral award.”
In the present proceedings, the bank is claiming an interest in these funds and alleges that GSC and Mr Samuels acted in breach of trust and/or fiduciary duties by transferring the money.
The bank also pleads a claim in conspiracy to delay and ultimately avoid payment of the funds to the bank, with the law firm and Mr Samuels among the alleged co-conspirators.
Mr Gusinski has been debarred from defending the claim as he failed to comply with an unless order last year. The master noted that he has “made no admissions” about many of the facts relied on by the bank for the conspiracy claim and denied that its inferences could be validly drawn.
The law firm and Mr Samuels dealt with the allegations “far more comprehensively” in their defence, but their replies to many of them were said to be limited by the LPP which could be asserted by their former clients.
Deputy Master Scher said it appeared “more likely than not on the balance of probabilities” that NCD had misled the Swiss court in early 2018 when applying temporary insolvency moratorium in the face of the payment notice.
The guarantors had then “misled the arbitral tribunal”, while NCD, controlled by Mr Gusinski, “diverted funds which could have been seized by the bank to other companies within the New Media Group”.
The master concluded: “There is, therefore, a prima facie case of the iniquity relied on by the claimant as giving rise to the iniquity exception, namely a decision by Mr Gusinski to avoid the New Media Group repaying the sums owed to the claimant, and a sufficiently dishonest or underhand scheme which allowed him to achieve that.
“In my judgment, there is sufficient evidence here to satisfy the merits threshold for that iniquity.”
As a result, no LPP applied to “documents and communications brought into existence as part of or in furtherance of the alleged decision by Mr Gusinski to avoid the New Media Group repaying the sums owed” to the bank, and “the alleged scheme which has so far allowed him to achieve that”.
Leave a Comment