Privilege and Fraud – when can the iniquity exception override legal professional privilege?

It is a long standing principle that communications between lawyers and their clients made for the purpose of seeking or giving legal advice are confidential and protected by legal professional privilege (LPP). However, it is also established that a client cannot assert LPP in relation to documents which were brought into existence for a criminal or fraudulent purpose; this is known as the “iniquity exception”.

In the recent decision of Barrowfen Properties v Patel & Ors [2020] EWHC 2536 (Ch) (24 September 2020), Tom Leech QC, sitting as a Judge in the Chancery Division of the High Court of Justice, explored the relationship between LPP and the iniquity exception.

The application brought by the Claimant company challenged the Defendants’ rights to withhold the disclosure of documents containing legal advice given by the Second Defendant (a firm of solicitors) by way of a joint retainer. The Claimant relied on the iniquity exception and alleged that the First Defendant (Girish Patel) (who was a director of the Claimant at the relevant time) had engaged in acts which, in summary, sought to fraudulently alter the shareholding of the Claimant for his own personal gain (such plan including to thereafter place the Claimant into administration and purchase from administration its sole asset, being a property in Tooting, South London). The Claimant also challenged the failure to disclose the documents on the basis that the documents were created in the course of a joint retainer, and that neither party was entitled to assert LPP against the other. The Second Defendant law firm remained neutral to the application and stated that its position was that LLP applied unless the Court ordered otherwise.

Tom Leech QC confirmed in his judgment that the correct application of the iniquity exception was to consider whether there was “a strong prima facie case of fraud”. This scope included directors breaching sections 172 to 175 and 177 of the Companies Act 2006 in circumstances of “fraud, dishonesty, bad faith or sharp practice, or where the director consciously or deliberately prefers his or her own interests over the company and does so “under a cloak of secrecy,”’(paragraph 35 of the Judgement). The threshold for the application of the iniquity exception is considered to be lower than that of actually proving the existence of an actual fraud.

The Claimant was able to satisfy the Court that there was a strong prima facie case of fraud alleged against the First Defendant on the evidence it presented, such that the Claimant should be entitled to the disclosure of the documentation sought. In respect of the joint retainer aspect of the Claimant’s case, Tom Leech QC determined that the default position should be that the Claimant ought to be entitled to disclosure and production of all privileged documents created by the Second Defendant in the course of any joint retainer between the Claimant and the First Defendant. In any event, such documents (if any) which were not covered by the joint retainer would be disclosable pursuant to the iniquity exception. The Judgment also confirmed that the iniquity exception would apply whether or not the solicitors were aware of the wrongful purpose for which their advice was being utilised.

This case provides a helpful update as to the application of the iniquity principle where documents seem at first blush to be protected by LLP and can be a useful tool in investigations into fraudulent activity.

If you have any queries or comments, please do not hesitate to contact Jason Freedman or Heidi Wagstaff, or anyone else from the our Investigations Team.