Public law and professional negligence: Eurasian Natural Resources Corporation litigation update

The ‘Phase Two’ trial in the high-profile Eurasian Natural Resources Corporation (ENRC) litigation commenced recently, to determine issues of quantum. This is the latest round of litigation in what is considered to be one of the most significant public law and professional negligence cases heard in the Commercial Court.

History of the ENRC litigation

ENRC was once one of the more prominent London listed mining groups with major operations in Kazakhstan when its shares were admitted to the Main Market in 2007. However, after several turbulent years ENRC delisted in 2013 at a significant discount to the floatation price.

During this period, the Serious Fraud Office (SFO) announced it was opening an investigation into ENRC. ENRC has since become embroiled in a long running dispute with the Serious Fraud Office (SFO) and its former legal representatives, Dechert LLP (“Dechert”) and Mr Gerrard (a former Dechert Partner) concerning this.

The dispute dates back to 2011 when, following one of its employees whistleblowing, ENRC instructed Dechert to advise on internal investigations concerning some of its operations which may have been tainted by bribery, corruption and fraud. On the advice of Dechert, ENRC voluntarily engaged with the SFO but this led to the SFO launching a criminal investigation into the affairs of ENRC in 2013.

ENRC alleged that the SFO criminal investigation was the result of misconduct on the part of Dechert and the SFO. ENRC alleged, amongst other things, that Mr Gerrard disclosed confidential and privileged information to the SFO and leaked information concerning the SFO investigation to the press. ENRC also claimed that certain SFO officers were not only aware of Mr Gerrard’s breaches of duty but actively participated in them. It was ENRC’s position that, but for the conduct of Mr Gerrard and the SFO, the SFO would never have launched the criminal investigation.

Phase One trial

An 11-week ‘Phase One’ trial took place to determine liability, and judgment was handed down in 2022.

Mr Gerrard was found to have breached his contractual, tortious and fiduciary duties to ENRC owing to “almost unimaginable” misconduct. It was found that, amongst other things, he had indeed been the source of the media leaks, had engaged with the SFO without authority, failed to protect ENRC in relation to privilege and provided negligent advice.

As for the SFO, it was found that it was in serious breach of its own duties in engaging with and taking information from Mr Gerrard which was plainly unauthorised. The Court found their conduct to be “bad faith opportunism” and found that it had induced Mr Gerrard to breach his contract with ENRC.

Phase 1A trial

A second two-week trial was held in 2023 to deal with discrete issues of causation, loss and contribution following the findings made in Phase One. It was a significant judgment for ENRC who alleged that the Defendants were jointly and severally liable for its primary losses which consisted of:

• fees paid to Dechert which ENRC should never have paid because they related to work which in truth was unnecessary in the sum of £11.25 million (“Unnecessary Work”)

• the costs of various third-party providers which were similarly unnecessary in the sum of £9.5 million (“Unnecessary Costs”)

• Wasted Management Time in the sum of £232,000 (“Wasted Management Time”)

ENRC further asserted that the SFO would not have commenced the criminal investigation into ENRC but for the SFO’s breaches of duty. Further losses are associated with this element of the claim.

Prior to commencement of the trial, Dechert paid ENRC £6 million in respect of Unnecessary Work and £3 million in respect of Unnecessary Costs, asserting that this represented the losses for which it was liable.

The Court held that the SFO’s wrongdoing was the effective cause of all of the losses claimed by ENRC and that, but for the SFO’s wrongdoing, it would not have commenced the criminal investigation into ENRC. The Court found that ENRC was entitled to “significantly more” damages than Dechert and the SFO contended but not as much as ENRC sought. The SFO’s defences of remoteness, reasonable foreseeability and failure to mitigate were rejected.

On the issue of contribution, it was found that:

• in respect of liability for Unnecessary Work, Dechert and Mr Gerrard were 100% responsible and must indemnify the SFO on a joint and several basis

• in respect of liability for Unnecessary Cost and Wasted Management Time, the just and equitable contribution from the SFO to the Dechert defendants was 25%. Dechert and Mr Gerrard were therefore liable to contribute to the SFO 75% of the Unnecessary Costs and Wasted Management Time awarded on a joint and several basis.

Following the Phase 1A trial, the SFO closed its criminal investigation into ENRC after 11 years confirming that there was insufficient admissible evidence.

ENRC appeal

In August 2024, ahead of the Phase Two trial, ENRC sought permission to amend its pleadings to advance a claim for losses based on the diminution in value of ENRC’s shareholding in its subsidiaries. Permission was rejected at first instance. In part this was due to the fact that litigation holds had not been issued to all subsidiary entities and there was concern as to whether potentially relevant documents could have been destroyed.

However, on appeal ENRC was granted permission. This enabled EMRC to “reinstate” approximately USD 128 million of losses, bringing its total claim to approximately USD 290 million. An attempt to appeal this decision by Dechert was refused.

Phase Two trial

The current Phase Two trial is listed to deal with the remaining issues of quantum. It will deal with the most significant heads of loss including the losses arising from the criminal investigation and the group subsidiary losses. The split of any contribution for these losses will also need to be determined. The SFO argues that the same split determined in respect of Unnecessary Costs and Wasted Management Time in the Phase One trial should apply, namely 25% for the SFO and 75% for Dechert and Mr Gerrard. It will also deal with the precise quantification of the losses that were addressed in the Phase 1A trial.

Comment

The Phase Two decision will be an important judgment. It will bring finality to a dispute that has been ongoing for over 10 years, and will ultimately determine whether ENRC is entitled to recover hundreds of millions of dollars. However, this case is about much more than financial compensation.

The ENRC litigation will likely have a long-lasting impact on the approach that entities will take to engagement, and particularly voluntary engagement, with the SFO. Such steps are unlikely to be viewed as mere procedural compliance moving forward and entities may consider that they carry a far wider inherent risk. Artificially expanding an investigation can lead to potentially recoverable losses. It is yet to be seen how the SFO’s approach to investigations will be affected by the litigation, but regardless of the “success” that ENRC achieves at Phase Two, damage has already been done for the SFO.

The decision will provide clarity on the Court’s approach to disputes of this nature which involve unlawful conduct of public bodies. The Court has to date shown a relatively commercial and pragmatic approach to the issues before it. It has been less persuaded by technical defences and to artificially narrowing the ambit of the case. However, it will be interesting to see how far the Court is willing to push the chain of causation and reflective loss principles in respect of the claims relating to the subsidiary entities.

It is likely to be some months before the Phase Two judgment is handed down and further updates will follow.

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