Privilege and the “fraud/iniquity exception”

Written on 16 Jun 2015

It is a well-established principle under English law that the court can order disclosure of legal advice and communications with lawyers, which would otherwise be privileged, if that the advice formed part of a fraud.
However, as the recent case of London Borough of Brent v Kane [2014] EWHC 4564 (Ch) illustrates, the standard of proof on the person seeking disclosure of the documents is far lower than that of proving actual fraud. The applicant need only show a “prima facie” case of “sharp practice or something of an underhand nature“. It seems likely that we will see more of these applications in the future.

As we discussed in our last update,
it is a fundamental principle of English law that communications passing
between a client and its lawyer for the purposes of litigation or the giving or
receiving of legal advice will be considered to be legally privileged.  Unless that privilege has been waived (for
example by voluntary disclosure), parties can rely on legal privilege to resist
disclosure in civil litigation or criminal or regulatory proceedings.

One exception to this general rule is the fraud or “iniquity
exception, which applies where it appears that the legal advice has been given
or sought for the purpose of pursuing a fraud or crime. Where the iniquity
exception applies, an English Court can order the disclosure of legal advice (as
it did in the recent high profile Ablyazov[6]

Traditionally, this exception has typically been confined to
clear cases of serious fraud.  However,
in the case of Brent v Kane, the
facts of the case related to transactions within a family which were said to
have been carried out in order to reduce the wealth of the father to avoid him
having to contribute towards likely costs of residential care.  The Claimant, a London local authority, made
an application for the disclosure of the instructions to the father’s lawyers
in relation to the relevant transactions. In particular, the local authority
alleged that the father had transferred a 50% interest in a property in an
attempt to avoid charges for residential care totalling £162,650.30.

The judge determined that the fraud exception applied and
the defendants were ordered to disclose the relevant communications. The judge
noted that, although the case law on the iniquity exception refers to crime or
fraud or dishonesty, “fraud” should be understood in a relatively
wide sense. Importantly, the judge states that all that the court requires is prima facie evidence (more than “mere speculation or assertion“)
that the wrongdoer has been involved in “sharp practice or something of an underhand nature“.

This decision shows that it is not only in the most serious
fraud cases that the court will apply the fraud exception and order disclosure
of communications with lawyers.  However,
the difficulty that arises is that the threshold of a “prima facie” case of “sharp practice or something of an underhand
” is far lower than that of proving actual fraud. 

It seems likely that we may see more of these applications
in the future.  Where parties are having
difficulty enforcing against opponents suspected of fraudulent or underhand
dealings, the ability to obtain communications with their legal advisers could
prove a potent weapon.

[6] JSC
BTA Bank v Ablyazov and others [2014] EWHC (2788) (Comm)