UPDATE 1-Grant Thornton pair lose disclosure battle in Tchenguiz UK lawsuit
(Adds details from judgment, costs)
LONDON Feb 20 (Reuters) - Two senior employees of UK auditor Grant Thornton, named in a legal battle between the Tchenguiz brothers and the Serious Fraud Office, have lost an appeal against a court order forcing them to hand over sensitive documents to the property moguls.
Grant Thornton was dragged into the spotlight in 2011 by Vincent and Robert Tchenguiz, who have brought a record 300 million pound ($500 million) damages claim against the SFO over a botched investigation into the circumstances surrounding the collapse of Icelandic bank Kaupthing in 2008.
Lawyers for the brothers have alleged that Grant Thornton partner Steve Akers and Mark McDonald, a director, gave the SFO "misleading and inaccurate" information that sparked a flawed criminal investigation, costing the brothers more than 2.5 billion pounds and damaging their reputation.
The Iranian-born brothers - two of London's most high-profile entrepreneurs renowned for their lavish lifestyles - have long hoped to get hold of five reports prepared by Grant Thornton, which they say the SFO wrongly relied on to investigate and arrest them in 2011.
Upholding a judgment handed down last July, Court of Appeal Judge Stephen Tomlinson on Thursday dismissed Akers and McDonald's argument that the reports were subject to litigation privilege, partly because no legal proceedings had begun.
Akers and McDonald now have to pay the Tchenguiz brothers' legal costs for the appeal.
"I am pleased with today's court ruling forcing the disclosure of the five Grant Thornton reports which were clearly fundamental to the SFO's absurd decision to start their investigation that caused me and my business significant financial loss," Vincent Tchenguiz said in a statement.
Akers and McDonald are joint liquidators of the Oscatello group of companies, a British Virgin Islands-registered investment vehicle of the Tchenguiz Discretionary Trust (TDT), of which Robert Tchenguiz is a beneficiary.
Akers and McDonald said they would not challenge the ruling but would continue to seek to recover 183 million pounds of assets held in the TDT.
"We are disappointed by today's judgment and are deeply concerned that the ruling will impede our work to recover assets from the TDT," they said in a joint statement.
The Tchenguiz brothers were arrested in a blaze of publicity in March 2011 and their homes and offices in London's upmarket Mayfair and Park Lane raided as part.
The arrests were part of an SFO investigation into the brothers' dealings with Kaupthing, which became increasingly exposed to Robert's margin calls from other banks in the months ahead of a collapse that caused British retail depositors to lose millions.
However, after the brothers launched challenged in court the SFO's handling of the case in 2012, the search warrants obtained by the SFO were found to be unlawful.
Under the stewardship of new director David Green, the SFO dropped its investigation, ending an embarrassing episode during which it was criticised by judges for "sheer incompetence", forced to offer a series of apologies and left facing an eye-watering damages claim from the brothers.
"We can now find out just what it was that led the SFO to unlawfully seek and illegally execute warrants that have done monumental damage to my life, family, reputation and business interests," said Robert Tchenguiz.
The Tchenguiz business empire, which once included large stakes in retailer J Sainsbury, pub chain Mitchells and Butlers and a vast portfolio of property assets valued at up to 4 billion pounds, has been severely dented since the Icelandic banking collapse.
Iceland's main three commercial banks Kaupthing, Landsbanki and Glitnir buckled in the space of a week under the weight of huge debts racked up during years of aggressive expansion.
($1 = 0.5989 British pounds) (Editing by Pravin Char)