High Court finds iniquity exception to privilege applies

The High Court has held that documents obtained pursuant to a search order were not protected by privilege as the iniquity exception applied: Lakatamia Shipping Company Limited and other v Nobu Su and others [2022] EWHC 3115.

Under that principle, privilege does not apply to protect communications made in furtherance of a crime, fraud or equivalent conduct. The question the court has to consider is whether the disputed communications are part of the professional engagement of the solicitor or whether there has been an abuse of the solicitor client relationship, such that the privilege is negated.

In this case, the test was satisfied in the context of a campaign by the respondent, fought over a number of years, to avoid giving disclosure of assets and prevent enforcement. In that respect the case has striking parallels with JSC BTA Bank v Ablyazov [2014] EWHC 2788 (Comm), considered here.

This decision, and the decision in JSC BTA Bank, demonstrate that the iniquity principle is likely to be engaged where judgment has been obtained and the defendant is taking active steps to thwart enforcement. This is in contrast to the position where a defendant has merely put forward a defence which has ultimately not been accepted at trial. In those cases, it will generally be more difficult to establish that there has been an abuse of the lawyer client relationship (see for example Candey Ltd v Bosheh [2022] EWCA Civ 1103 considered here).

Background

Lakatamia obtained a world-wide freezing order against Mr Su, in 2011, and in 2014 obtained judgment against him for a sum in excess of US$47 million. The sum outstanding is now more than US$60 million. Lakatamia has been seeking to enforce the judgment for some years and has obtained a number of judgments finding Mr Su to be in contempt of court. Those judgments resulted in the imposition of prison sentences.

The current application concerned claims for privilege in respect of documents obtained from Mr Su during the course of the execution of search orders in June 2020. The documents were in the first instance passed to independent reviewing lawyers appointed by the court. They released a large volume of documentation to Lakatamia, but also withheld a large number of documents on the basis that they were or might be privileged. Lakatamia argued that the documents were not protected by privilege due to the application of the iniquity principle.

The first category of documents sought by Lakatamia consisted of correspondence between Mr Su and his English solicitors and counsel during a period when Mr Su was purporting to provide disclosure of his assets pursuant to various disclosure orders, including the freezing injunction.

The second category consisted of correspondence between Mr Su and a lawyer in Monaco who acted for a company, Cresta, which owned very valuable properties in Monaco. The English court later found that Cresta held those properties on Mr Su's behalf and that Mr Su had dissipated the proceeds of their sale.

Lakatamia sought the documents on the basis that they might reveal information about Mr Su's assets. Mr Su unsuccessfully sought an adjournment of the hearing. He had returned to Japan, having served half of the prison sentences imposed on him, and the hearing was arranged as a hybrid hearing so that he had the opportunity to participate. He did not do so.

Decision

The High Court (Jacobs J) held that the iniquity principle applied and documents in both categories (within certain dates and confined to correspondence concerning or containing information about assets) were not privileged.

The judge first observed that the context of the application was, as Sir Michael Burton had previously described it, one of the most serious campaigns of contempt in the English courts.

So far as the first category of documents was concerned, there was ample evidence that the instruction of the lawyers was not for the purpose of providing a proper account of Mr Su's assets, but rather to give the impression that there was compliance when in fact there was not - given that at the same time as instructing the lawyers, Mr Su was hiding assets or dealing with them in contempt of court.

There was no suggestion that the lawyers were complicit with Mr Su, but there was an abuse of the lawyer client engagement as they were being used as an instrument to perpetuate the deception of Lakatamia and of the court in relation to the existence and whereabouts of Mr Su's assets. In that respect, there was a parallel between this case and JSC BTA Bank.

So far as the second category of documents was concerned, there was again an abuse of the normal relationship of client and lawyer. Documents concerning a possible refinancing which did not take place might encompass discussion as to Mr Su's other assets which might have been made available for the purposes of providing security. While proceedings had been commenced against the Monaco lawyer alleging that he was party to a conspiracy (which he was defending), any privilege in the communications with him would be that of Mr Su, not the lawyer. The current application did not seek, or need to establish, any wrongdoing on the part of the lawyer.