Iniquity exception to privilege does not apply just because defendant to fraud claim lies to their solicitors and the court

A recent High Court decision acts as a reminder that parties will not necessarily be prevented from maintaining privilege in all cases where it is found that they have made false statements to their solicitors and the court: Candey Ltd v Bosheh [2021] EWHC 3409 (Comm).

It is well established that privilege will not protect communications made in furtherance of a crime, fraud or equivalent conduct. This is often referred to as the "iniquity exception". Its precise boundaries are not always clear, however, particularly where a client puts forward what is later found to be an untrue case. The present decision illustrates that privilege will not necessarily be lost in such circumstances, even where the client has deceived their solicitors and the court (as alleged in the present case, though the allegations were contested).

To lose the protection of privilege, there must be an abuse of the solicitor / client relationship to such an extent that it takes the matter outside the normal scope of a professional engagement (see for example JSC BTA Bank v Ablyazov [2014] EWHC 2788, considered here). This is obviously not a bright-line test, and leaves the potential for some blurring around the edges. In the present case, however, the court held that it was clear that the test was not met.

The decision also shows that a party who has received another party's confidential material in circumstances where it had no right to do so may be denied permission to retain and rely on it, even if it may ultimately be entitled to disclosure of the material in the course of the proceedings.

Background

A firm of solicitors brought claims in fraud against their former client relating to the firm's role in representing the client in defending similar fraud allegations in a High Court action in the Chancery Division under a conditional fee agreement (CFA).

The Chancery action had been settled on a drop hands basis, on terms that did not give rise to an entitlement for the solicitors to receive a payment based on a successful outcome under the CFA. The solicitors then brought the current claims alleging (in simple terms) that they had suffered loss of more than £3 million (reflecting the value of their work) due to the client falsely representing that they would act in their own best interests only and in good faith, that the Chancery action against them would not succeed, and that certain central allegations against them in that action were unfounded.

The client sought relief against the solicitors' use of their confidential and privileged information in putting forward the claims - as well as seeking summary judgment or strike-out of the claims themselves (which application was granted, save for a claim for breach of contract for an amount up to £21,000). This blog post focuses on the privilege and confidentiality issues.

Decision

The High Court (Clare Ambrose sitting as a deputy High Court judge) held that the solicitors were not entitled to rely on the client's privileged material in their particulars of claim, and their witness statements and exhibits, and granted an order striking out such material as inadmissible. She also held that the solicitors were not entitled to rely on certain confidential bank statements of the client, but could rely on material disclosed by the client in the Chancery action.

Privilege

The solicitors had argued that they could rely on the privileged material because of the iniquity exception. The deputy judge referred to JSC BTA Bank v Ablyazov, referred to above, on which both parties relied. In that case, Popplewell J explored the authorities which acknowledge that the iniquity exception cannot be invoked merely because a client has deceived their lawyer and thereby continued a strategy of lies and perjury. The test is whether the disputed communications are made in the ordinary course of the solicitor's professional engagement or whether there has been an abuse of the solicitor / client relationship such that privilege over the communications is negated.

The deputy judge noted that fraud actions are, by their nature, likely to be situations where there are prima facie grounds for alleging fraud, and the cases show that in the ordinary run of cases clients may be deliberately untruthful to their lawyers or the court. However, a defendant is entitled to defend such actions, and entitled to assert privilege over legal advice obtained in doing so. As the deputy judge put it:

"A client falsely denying fraud, overstating the merits of his position in the litigation and misrepresenting his loyalty to his lawyers or his motives on settlement is within the normal run of case. False statements on these matters do not deprive the client of the right to legal professional privilege."

Even taking the solicitors' case at its highest, the deputy judge concluded, the alleged deceptions did not take the matter outside the ordinary course of a solicitor's professional engagement or amount to an abuse of the solicitor / client relationship so as to negate privilege.

The deputy judge also rejected the solicitors' argument that they should be able to rely on the privileged material to sue the former client even if the client could assert privilege vis-a-vis a third party, and that otherwise solicitors entering into conditional or contingency fee arrangements would have no means of recompense from a lying client. She commented that a client represented by a solicitor acting on a conditional or contingency fee basis is entitled to the protection of privilege just as where the solicitor acts on a traditional hourly basis. Solicitors have a choice in accepting work under such retainers "with the inherent extra risks and rewards involved". The solicitor's uplift for success reflects the risk that some cases will not succeed, including because the client is not believed or settles the case unfavourably. The deputy judge noted that the client had "correctly questioned the basis of such an uplift in a fraud case if the solicitor can still use his client's most sensitive communications to sue him on the basis of the same fraud if he does not achieve success".

Confidentiality

In relation to confidentiality, the client asked the court to exclude:

• bank statements of the client which the solicitors had received after termination of the retainer pursuant to an authority given by the client prior to termination; and
• documents the client had provided to the solicitors in confidence in the context of its retainer in the Chancery action.

The deputy judge held that the solicitors had no lawful basis for retaining and reviewing the bank statements that they received after terminating the retainer, and they should have been returned immediately. She refused the solicitors permission to use the statements - though recognising that they may in due course be subject to a disclosure order (and thereby protected by the collateral undertaking which covers documents disclosed in proceedings).

She described the position regarding the wider range of documents the client had provided to the solicitors as less clear cut, saying it was relevant that many of them were likely to be disclosable if the matter proceeded. She held that the court would not restrain their use but would direct that they be held and used by the solicitors as if disclosed in these proceedings (so that the collateral undertaking applied).