Gary Orritt explains the difficult choice between allowing a claimant to benefit from illicit evidence, and letting a defendant accused of fraud to escape an apparently strong case against him.

The Commercial Court was recently presented with a unique question: What should the Court do when someone with an apparently strong and substantial, perhaps unanswerable, claim in fraud seeks summary judgment in light of illicit knowledge obtained by unethical means?

In other words, should a claimant be allowed to rely on knowledge and evidence that came into their hands via unethical channels? If not, what should the Court’s response be bearing in mind that a defendant with an objectively weak defence might be absolved of the underlying fraud?

These were some of the tricky questions facing Stephen Houseman KC, sitting as a Deputy Judge in the High Court in [2025] EWHC 2968 (Comm).

Mr Houseman KC decided that it would not be appropriate and proportionate to strike out or stay the underlying action in light of the claimants’ abusive conduct, at least at this stage. However, it is likely that the claimants will pay the costs of the hearing on the indemnity basis, as an appropriate sanction.

As a reflection of the importance of the issues at hand, the judge has already granted permission to appeal and cross-appeal. If the case continues, it seems destined for the Supreme Court.

Brief background facts

A solicitor acting for the defendant was deceived into meeting a private investigator in the belief that he was pitching for a new client represented by them. Across nine hours of meetings, the solicitor, referred to as “X”, was coerced by apparently skilful intelligence techniques to divulge information and offer insights into the perceived strengths and weaknesses of his client’s strategic position in the proceedings, including relating to settlement.

These meetings, arranged by a third party organisation with apparent links to the claimants, were secretly filmed and recorded. Those video and audio recordings were provided to the claimants who then deployed the information when applying for summary judgment.

The underlying case relates to an allegedly fraudulent scheme to expropriate shares. Mr Sklarov (a defendant) was said to be the main financial beneficiary of this scheme. In a previous hearing, when continuing Worldwide Freezing Orders, Calver J considered there to be a “strongly arguable” case that the claimants’ deceit claim would succeed. An application to commit Mr Sklarov for contempt is pending. There are other pleaded claims in contract, conspiracy, breach of trust or fiduciary duty, dishonest assistance and knowing receipt.

The applications before Mr Houseman KC at the most recent hearing were:

• An application by the claimants seeking summary judgment on the liability elements of their pleaded claims in deceit and contract.
• A cross-application by certain defendants to strike out or stay the action for abuse of process and/or a risk of an unfair trial.

The significance of the underlying claim in fraud

There is some significance to the underlying case being one of fraud.

The civil litigation system is supposed to ensure that a defendant who is responsible for “serious wrongdoing, such as fraud” is held accountable. Fraud is famously said to “unravel all”. A defendant should not necessarily be let off the hook to enjoy the benefit of his own misdeeds, purely on the basis that the other side has also acted reprehensibly.

That reasoning seems to have influenced the Court’s decision not to strike out the claim. Striking out or staying the entire claim was considered to be disproportionate in circumstances where there is a decent prospect of the claimants succeeding on their deceit claim at trial.

The judge emphasised that “there is a distinct policy in favour of exposing and remedying serious wrongdoing such as fraud.”

The culpability of the solicitor

It is clear that X should not have divulged the information that he did about his client’s case. Solicitors are under a strict duty of confidentiality to their clients, regardless of the circumstances.

However, the Court had some sympathy with the way in which information was extracted from X. Mr Houseman KC described how X was “skilfully and tenaciously” steered into discussing various aspects of the litigation and settlement strategy of his clients. The questioning was “designed to pressure the interviewee into privileged and confidential territory.”

The claimants argued that there ought to have been a “nil return” from the questioning if X had complied with his professional obligations. However, the intention behind that submission was directed at the claimants’ assuming no responsibility for the investigator’s actions. This was firmly rejected. The Judge did not accept that X “would have provided the same information to a genuine potential new client”.

The claimants’ conduct

The Court’s ire was largely directed at the claimants.

First, the Court considered it noteworthy that the process leading to the extraction of information remained “opaque”, and that the claimants had failed to deny the extent of their own role in targeting X to extract sensitive intelligence from him. The Court was “left with the distinct impression that [the claimants were] choosing to hide details”.

Second, there was no evidence to suggest that the claimants were “shocked or surprised” to receive the fruits of the covert operation. On the contrary, they sought to make use of the illicit knowledge in their summary judgment application, which the Judge said “compounded” the abuse.

Although the conduct was not found to be unlawful, it was unethical. The Court was damning about the behaviour and considered it to be an abuse of process:

“It was something that should not happen and it cannot be countenanced by the Court. The use of unethical methods to target an adversary’s solicitor in the hope of extracting sensitive information or insights from them is anathema to the norms and values of civil litigation. It is cheating the system with a view to undermining the level playing field which the Court strives to maintain between opposing parties. It offends justice.”

The Judge’s decision

The Judge confirmed that “the categories of abuse are not closed”. Although CPR r. 3.4(2)(b) focuses on abuse relating to statements of case, the interpretation of the rule was much broader so as to cover the circumstances of this case. The Judge was robust in his criticism of the claimants. The conduct was described as “abnormal and abusive”. His striking conclusion was that they had “engaged in unethical behaviour with a view to obtaining an unfair litigation advantage”, so had “brought [the consequences] upon themselves”.

Despite that, rather than striking out the claim, the Court considered that a more proportionate response would be to strike out the claimant’s summary judgment application, and (absent compelling argument) for there to be an adverse costs order (likely on the indemnity basis).

It is perhaps surprising that strike out was not the outcome given the seriousness of the conduct. The Judge alluded to this in one of his closing remarks, saying that he was concerned that he had been too lenient on the claimants. In any event, this was one of the reasons why an appellate court would be interested in the issues raised by this case.

Separate to any appeal, there will be an additional “Information Review Hearing” to decide the evidential status of the illicit information.

Comment

If proceedings continue, this will be a difficult claim for the parties, and for the Court to manage. It is unclear how there can be a fair trial. The claimants cannot have their illicit knowledge erased or reversed. As Judge Houseman KC said “there is no way of policing its invidious or invisible influence upon their litigation or settlement strategy day in day out.”

The claimants’ tactics were clearly inadvisable, but they seem all the more unusual given the apparent strength of their case.

The unusual circumstances of this case shine a light on nefarious practices that some litigants will deploy in order to gain an advantage in litigation. The Court acknowledged that, whereas there are clear procedural rules in place to remedy inadvertent disclosures of privileged information, there is no such regime for “deliberate acquisition of another party’s privileged material”.

This decision is important for litigants, and professional representatives (as well as to private investigators). It serves as a reminder to solicitors about the sanctity of client confidentiality and privilege. There are no circumstances that warrant disclosing the litigation and settlement strategy to anyone outside of the client team.

The Court was keen to emphasise that underhand practices will not be tolerated in the English courts. When addressing the spectre of strike out, the Judge was keen to focus on the need “to protect the court’s process”, and to apply a “deterrent factor to help ensure compliance by others in future”. However, it is clear from the opening line of the judgment, namely that the Judge had a “difficult choice” that a careful balancing act was required. The Court recognised that strike out is “a draconian measure”, and one of “last resort”. It will be slow to let allegations of fraud go unchallenged.