Court of Appeal considers iniquity exception to privilege

The Court of Appeal has upheld a High Court decision (considered here) which found 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 [2022] EWCA Civ 1103.

It is well established that privilege does not apply to protect communications made in furtherance of a crime, fraud or equivalent conduct (often referred to as the "iniquity exception"). In considering whether this exception applies, the question is whether the disputed communications are part of the ordinary course of the professional engagement of the solicitor or whether there has been an abuse of the solicitor client relationship, such that privilege over those communications is negated. In this case, the solicitors were seeking to rely on alleged fraudulent statements made in the underlying action where they acted for the client. There was no new or different fraud which took the case out of the ordinary run and the iniquity exception was therefore not applicable.

The court also rejected an alternative argument, raised for the first time on appeal, that the documents were not privileged because there was no confidentiality in the documents as between the solicitors and client. Solicitors were obliged to keep privileged information confidential from third parties, including the court, when it was not in the public domain.

So far as confidential non-privileged documents are concerned, where the documents have been obtained improperly, the court has to consider whether the public policy interest in excluding evidence improperly obtained is trumped by the important (but narrower) objective of achieving justice in the particular case. That was not the position on the facts of this case, so permission to use the documents was denied.

Background

A firm of solicitors brought claims against their former client concerning their entitlement to be paid their fees for acting under a conditional fee agreement (CFA) in the defence of a Chancery action brought against the client alleging fraud.

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 sought to recover their fees by bringing a number of claims against the former client, including in deceit and for breach of an alleged duty of good faith in settling the Chancery action on those terms. The claim relied heavily on privileged and confidential material from the underlying action.

The High Court held that the solicitors were not entitled to rely on the client’s confidential and privileged material and rejected most of the claims put forward by the solicitors.

The solicitors appealed against the judge's refusal to allow them to rely on the confidential and privileged material and the finding that there was no implied duty of good faith owed by the client.

Decision

The Court of Appeal (Coulson, Arnold and Phillips LJJ) dismissed the appeal. The former client did not owe the solicitors a duty of good faith under the CFA, nor would they have owed such a duty under an ordinary retainer. In any event the client would not be in breach of any such term by settling on terms more advantageous to themselves than the solicitors. The solicitors were also not entitled to rely on the privileged and confidential documents in putting forward their case.

This blog post focuses on the privilege and confidentiality issues.

Privilege

The solicitors argued, in a point taken for the first time on appeal, that as there was no confidentiality between the solicitors and the client regarding the documents in question, there could be no privilege. Coulson LJ, who gave the main judgment, was reluctant to express a concluded view on this argument, but considered it was potentially at odds with the principal cases on privilege. It also did not take the matter any further, as whatever the position between client and solicitor, there was an obligation not to disclose the material to a third party, including the court.

Arnold LJ, giving an assenting judgment on this point, considered the argument was contrary to both principle and authority. If the information was not in the public domain, the solicitor owed the client a duty to keep it confidential and the fact the solicitor did not need to obtain disclosure of the documents did not mean privilege had no role to play. The client could rely on privilege to prevent the solicitor using the information in the documents without the client's consent.

The court also rejected the argument that there was an implied waiver of privilege where a client behaved in such a way as to give their lawyer a cause of action against them. There was no authority for such a proposition. Moreover, implied waiver on this basis would not be a narrow exception and it would impact on the solicitor/client relationship.

The issue therefore was whether the iniquity exception applied. That depended on an application of the test set out in JSC BTA Bank v Ablyazov [2014] EWHC 2788 (Comm) (considered here): were the disputed communications part of the ordinary course of the professional engagement of the solicitor, or had there been an abuse of the solicitor/client relationship, such that privilege over those communications was negated. The Court of Appeal agreed with the High Court's analysis. Even taking the solicitors' case at its highest, the alleged false statements related back to the original fraud alleged in the Chancery action. It was not a new or different fraud which took the case out of the ordinary run.

The court also went on to say, obiter, that a court will look very carefully to see whether the necessary threshold for the iniquity exception has been met, particularly where mere allegations of fraud are made and are, as in this case, just repetitions of past fraud which gave rise to the original proceedings. It is not enough to allege fraud - there must be some evidence that it has some foundation in fact.

So far as the CFA was concerned, the High Court had been right to say that a solicitor acting on a CFA was in no different position as to privilege to a solicitor acting on an ordinary retainer. Working under a CFA was a choice made by the solicitor.

Confidentiality

The High Court had been right to find that it had been unlawful and unjustified for the solicitors to open and go through the client's bank statements which had been provided to them for the purpose of the underlying claim but were only received after the claim had settled and the retainer terminated.

Applying the test in Mustard v Flowers [2019] EWHC 2623 (QB), the public policy interest in excluding evidence improperly obtained was not trumped here by the important (but narrower) objective of achieving justice in the particular case. The solicitors' attempt to recover their fees from the client did not trump the public interest in excluding improperly obtained evidence, particularly where the solicitors' claim was an attempt to avoid the terms of their own CFA.

Note: The Supreme Court has refused permission to appeal.