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High Court confirms narrow test for "iniquity exception" to legal professional privilege in Candey Ltd v Bosheh & Anor [2021] EWHC 3409 (Comm)

Overview

The High Court has confirmed the narrow scope of the "iniquity exception" to legal professional privilege in a fraud claim brought by a London law firm against a former client. The firm sought to rely on privileged communications and confidential information in its evidence.  The Court held that the firm could not rely on the iniquity exception and rejected an argument that a client owes its solicitor a duty of good faith.

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The "iniquity exception"

For public policy reasons, legal professional privilege is subject to several qualifications, one of which is the "iniquity exception".  The iniquity exception prevents a party from asserting privilege in relation to documents brought into existence for the purpose of furthering a crime or fraud.  The legal basis for the exception was described by Popplewell J in JSC BTA Bank v Ablyazov [2014] EWHC 2788 as follows.

  1. The public law justification for legal professional privilege is the necessary confidentiality between solicitor and client.

  2. Communications made in furtherance of an iniquitous purpose negate the necessary condition of confidentiality, and it is this which prevents legal professional privilege attaching to them.

  3. Further, communications made for such a purpose cannot have been made in the ordinary course of the professional engagement of a solicitor and so do not possess the necessary quality of confidence which arises in the course of the solicitor/client relationship. The absence or abuse of the normal solicitor/client relationship negates the confidentiality and therefore the privilege.

  4. The "ordinary run of cases" involves no such abuse: a solicitor instructed to defend the client facing a criminal charge performs his/her proper professional role in advancing what the client knows to be an untrue case.

While some cases will be clear-cut, there is obvious potential for uncertainty as to the application of the exception where the client has a dishonest purpose, particularly in cases involving fraud.

The facts

The Claimant, Candey Limited ("Candey") – a London-based law firm - claimed over £3 million in fraud and breach of contract against a former client, Mr Bosheh, and another solicitor, Mr Salfiti.  Candey had acted on a conditional fee arrangement ("CFA") for Mr Bosheh and his son ("the Boshehs"), who were defendants to a fraud claim.  Mr Salfiti was a co-defendant.  The claim against the Boshehs was settled shortly before trial, but the Boshehs settled on a drop hands basis and refused a settlement on the terms that Candey claimed to have negotiated for them, which would have involved Candey receiving 50% of any recovery against Mr Salfiti.  This meant that Candey could not recover fees based on the successful outcome of the action, pursuant to the CFA. Candey alleged that the Boshehs had falsely represented that they would act in their best interests only and in good faith, and that the central allegations against Mr Bosheh were unfounded.  Candey also sued Mr Salfiti for unlawful conspiracy and inducing Mr Bosheh's breach of the retainer.

The case came before Clare Ambrose sitting as a Deputy Judge of the High Court on a number of interlocutory applications, including applications by the defendants for relief against Candey's use of their privileged communications and confidential information, and for summary judgment or an order striking out the claim.

Decision

Issue 1: Whether the defendants could rely on privilege when their solicitor was alleging fraud against them

The defendants argued that the key elements of the claim related to the contents of privileged communications between Candey and Mr Bosheh and sought an order ruling that references to these communications were inadmissible.  Candey relied on the iniquity exception to legal professional privilege, arguing that any privilege in the communications was displaced by the defendants' alleged fraud.  Candey argued that policy considerations particularly supported this conclusion due to the increased use of CFAs, with solicitors now sharing greater risk with clients than in a traditional fee arrangement.

Reviewing the authorities on the iniquity exception, and in particular the reasoning of Popplewell J in JSC BTA Bank v Ablyazov set out above, the Court noted that in this case, the alleged false statements in relation to which Candey sought to invoke the iniquity exception were in essence the same (alleged) fraud in relation to which Mr Bosheh had engaged Candey to advise; that is, the statements were the very subject of the legal advice sought from Candey.  Even taking Candey's case at its highest, dishonesty in this respect would not take the matter outside the ordinary professional business of advising a client and taking instructions: "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."  The matter could be tested by asking whether a third party would be entitled to require disclosure of these communications.

It did not make a difference that Candey was acting on a CFA.  The Court noted that there are safeguards in a CFA, the most obvious being the uplift in fees for success, which reflects the risk that some cases will not result in success for the lawyer.

The Court therefore struck out as inadmissible the privileged material contained in Candey's witness statements, exhibits and Particulars of Claim.

Issue 2: Whether clients owe a duty of good faith towards their solicitors

Candey claimed that there had been a breach of an implied term in Mr Bosheh's retainer with them that he would "cooperate with, give a full and accurate account of the case to, and not deliberately mislead" Candey.  The Court held that Candey had no real prospect of establishing this implied duty, and granted summary judgment on this part of the claim.  The implied term was neither necessary for the retainer to work nor so obvious that it went without saying.  The Court confirmed that there is no authority to support the argument that a client owes his or her solicitor a duty of good faith. 

Issue 3: Whether solicitors can make use of documents received during/after the retainer

Candey had also sought to make use of (i) bank statements belonging to the Boshehs received by the firm after the conclusion of its retainer and (ii) documents disclosed to it by the Boshehs during the course of the retainer.  It argued that the documents would have been disclosable in due course.  The Court found in relation to the bank statements that Candey, having received confidential material in circumstances where it had no right to receive that material, was obliged to return it and could not rely on the documents, even if they would have been disclosable in due course.  The position in relation to the documents disclosed during the retainer was less clear-cut, and it was relevant that many would be disclosable in due course.  The Court permitted Candey to retain those documents, but subject to the imposition of the collateral undertaking, so that the documents were protected to the same extent as if they had been disclosed in the solicitor/client claim.

Summary

This case confirms that the client who makes false statements to its solicitors or the court will not necessarily lose the protection of legal advice privilege; in order to trigger the iniquity principle, there must be an abuse of the solicitor/client relationship which is so severe as to put the advice or conduct outside the scope of the professional engagement.  Further, there is no implied duty of good faith on the part of the client in a solicitor/client relationship.

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