High Court applies fraud/iniquity exception to displace litigation privilege

The High Court has held that certain communications between a client and lawyers during the course of proceedings were not protected by litigation privilege. The fraud/iniquity exception applied as there was a strong prima facie case that advice was being sought to assist in a strategy of concealment and deceit in relation to the client's assets: JSC Bank v Ablyazov and others [2014] EWHC 2788.

The fraud/iniquity exception means that if a person consults a solicitor in furtherance of a crime, fraud or other equivalent conduct, the communications with the solicitor do not attract privilege, regardless of whether (as was accepted in this case) the solicitor is ignorant of the client's purpose. Although the exception has long been established, there are relatively few cases in which it has been applied.

In the context of litigation privilege, the particular difficulty in practice is in drawing the line between the "ordinary run of cases" where a client puts forward what is found to be an untrue case (where privilege routinely applies) and those cases where there has been an abuse of the relationship to such an extent that it puts the advice or conduct outside the normal scope of a professional engagement (meaning there is no privilege).

It will be a matter of fact and degree in every case but it seems the fraud/iniquity exception will be applied relatively narrowly. In this case, although the exception applied to communications made in furtherance of the asset preservation and concealment strategy, privilege could still be claimed in respect of communications for the ordinary purpose of defending the claims on the merits. Where a communication was for both purposes, it would only attract privilege if the dominant purpose was conduct of the litigation independently of any iniquity.

Background

The underlying case concerns the Bank's claims that Mr Ablyazov misappropriated in the region of US$6 billion when he was chairman of the Bank. A number of proceedings were commenced and the Bank obtained judgment in one action after the court rejected Mr Ablyazov's defence on the merits. In three other actions judgment was given after Mr Ablyazov was debarred from defending by reason of his contempt of court in lying about and concealing his assets in breach of freezing and disclosure orders. He was also sentenced to 22 months' imprisonment in respect of his contempt.

Overall, as the judge (Mr Justice Popplewell) observed, it was not really in issue that the Banks's allegations of widespread concealment of assets, perjury, falsification of documents and wilful disobedience to court orders were made good, at least to the standard required of strong prima facie case.

Against this background, the Bank, relying on the fraud/iniquity exception, sought disclosure in aid of execution from three firms of solicitors instructed by Mr Ablyazov and in some cases his brother in law and nominee, Mr Shalabayev, of all documents concerning or containing information about their current or former assets or any prospective or actual injunction against them.

The modern origin of the fraud/iniquity exception is the case of R v Cox and Railton (1884) 14 QBD 153. If a person consults a solicitor in furtherance of a criminal purpose then, whether or not the solicitor knowingly assists in the furtherance of such purpose, the communications between the client and the solicitor do not attract legal professional privilege. The principle is not confined to criminal purposes, but extends to fraud or other equivalent underhand conduct which is in breach of a duty of good faith or contrary to public policy or the interests of justice.

The exception is most often invoked in relation to legal advice privilege but Kuwait Airways Corpn v Iraqi Airways (No 6) [2005] 1 WLR 2734 decides that it is also capable of applying to litigation privilege. It isn't enough, however, that a communication is untrue and if acted upon would lead to perjury in those proceedings; something more is required.

In the Kuwait Airways case, it had been established that perjured evidence had been given, forged documents relied on and relevant evidence suppressed during the course of the proceedings. In subsequent proceedings seeking to set aside the judgment, disclosure was ordered, relying on the fraud exception, of what would otherwise have been privileged documents concerning witness evidence and disclosure of documents.

Decision

In the present case, the judge considered that the evidence established a strong prima facie case that Mr Ablyazov was seeking advice in order to fashion and pursue a strategy of concealment and deceit which would involve perjury, forgery and contempt as and when required. This was an abuse of the normal solicitor client relationship and there could be no confidence in communications by which a client seeks to further such a strategy whilst keeping the solicitor in the dark about it. Documents concerning assets therefore had to be disclosed. The second part of the order sought, concerning the injunction, was however probably drawn too widely as the iniquity would not extend to the entirety of the work concerned with the defence on the merits.

The judge rejected an argument that the European Convention on Human Rights would be infringed by disclosure and that privilege against self-incrimination could be invoked. He also rejected an argument that ordering disclosure would be disproportionate.

Comment

Whether the fraud/iniquity exception can be relied upon in any particular case will depend on all the facts. The cases suggest however that misleading lawyers or putting forward a case which is subsequently disbelieved is unlikely to be enough in itself; something more is required. In the Kuwait Airways case, for example, there had been a widespread conspiracy to deceive the English court which had led to "the perversion of justice on a remarkable and almost unprecedented scale". In the Ablyazov case there was a strong prima facie case of a strategy relentlessly pursued with vigour to conceal assets, breach orders and deceive the court. This suggests that the fraud/iniquity exception will only be applied relatively rarely.