It’s been the law for a long time that legal privilege does not operate as a cloak for communications that themselves have been created to further a fraud. But the principle has not always been easy to define with precision, or indeed to apply. In this article, 4 New Square Chambers’ Neil Hext KC examines the recent Court of Appeal judgment in Al Sadeq v Dechert LLP which is an important decision in the area and provides useful guidance on a number of the issues that can arise.
What was the case about?
The Claimant had been a senior adviser and executive for the Ras Al Khaimah Investment Authority (“RAKIA”), the sovereign wealth fund of the Emirate of Ras Al Khaimah. In 2014, he was arrested at his home in Dubai and taken to the Emirate, where he was detained for a lengthy period prior to being convicted of fraud by the Ras Al Khaimah courts. He claimed that his original arrest and transfer from Dubai amounted to kidnap and extraordinary rendition, that his detention in Ras Al Khaimah was unlawful and that, while detained, he was the subject of torture and inhumane treatment and denied legal representation.
Dechert LLP was acting at the relevant time for RAKIA and its successor in connection with an investigation of significant frauds alleged to have been committed between 2005 and 2012 by RAKIA’s then CEO. The frauds were said to be very substantial, running to hundreds of millions of dollars.
In proceedings before the English courts, the Claimant alleged that Dechert LLP and three of its staff had been involved in using threats, mistreatment and other unlawful methods to force him (the Claimant) to give evidence against the former CEO. He claimed damages for physical, psychological and financial harm that he alleged had been caused by his ill treatment.
Decherts gave disclosure during the course of those proceedings, but an issue arose as to the extent to which documents held by the firm were privileged for their clients, whether by way of legal advice privilege or litigation privilege.
The Privilege Problem
The first issue was, what level of proof did the Claimant have to reach at the interlocutory stage in order to trigger the operation of the iniquity exception? This question is particularly stark in the context of a case in which, as here, the iniquity alleged is part and parcel of the underlying allegations in the case. Those allegations will in due course be resolved at trial, but ex hypothesi at the disclosure stage they have not been determined. Thus the party seeking disclosure is asking the court to disapply privilege. But the evidential basis upon which it seeks to do so is necessarily incomplete and may well be, and often will be, hotly disputed.
Previous cases have sought to resolve this tension by requiring that the party seeking disclosure demonstrate that there is a “strong prima facie case” of criminal or fraudulent conduct before the iniquity principle will be engaged. It was applying that test that Decherts said they had carried out the original disclosure exercise. But what that means in practice can itself give rise to significant dispute.
The second issue was, what relationship between the communications of which disclosure was sought and the iniquity was necessary in order for the court to hold that privilege could not be maintained? On this, Decherts had argued for a narrow test, namely that only documents brought into existence for the purpose of furthering the iniquity would be disclosable.
The judge at first instance held in favour of Decherts on the second issue. But he also said that the evidential threshold for the application of the iniquity exception was one of “at least a strong prima facie case, if not a very strong prima facie case.” He held broadly (and with one exception) that that standard had not been met.
In the Court of Appeal
The substantive judgment was given by Popplewell LJ, with whom Males and Underhill LJJ agreed. It’s a tour de force in relation to quite a number of issues that relate to privilege – there is guidance in there that will be of value more generally, including as to whether the controversial Three Rivers (No 5) principle applies to litigation privilege (it does not). However, on the main topic, Popplewell LJ held that the threshold for the iniquity exception is a balance of probabilities test. The existence of the relevant iniquity – in many cases fraud but, as this case demonstrates, it can be wrongdoing of other kinds – must be more likely than not on the material available to the decision maker at the relevant time.
The “decision maker” here will either be the party or legal adviser determining whether to give disclosure of the relevant documents in the first place; or it will be the court itself on a disputed disclosure application.
The reason that this is the correct evidential standard is because the iniquity exception involves two competing policy considerations. On the one hand, there is the public interest in the inviolability of privileged communications – the rationale is that actual or potential litigants should be free to unburden themselves without reserve to their legal advisers, and their legal advisers should be free to give advice on a sound factual basis, without both lawyer and client being afraid that those communications might subsequently become admissible before a court. But on the other hand, there is a strong public interest in iniquity being uncovered.
The tension between these principles arises because the decision maker has to make the decision on the basis of limited material and without the evidence having been explored and tested at a trial. The prejudice to one side or other if the decision is incorrect can be significant: if disclosure is ordered, the party whose privilege it is will have lost his protection; but if it is not, the party seeking disclosure may be deprived of the benefit of evidence to which it was, as it may in the end turn out, entitled.
Popplewell LJ said that, as a matter of principle, adopting a test of prospects of success of less than 50% would involve requiring disclosure of documents that on the material available were more likely than not to be privileged. Given that privilege is a fundamental human right, that could not be a satisfactory approach. The test should therefore normally be whether, on the balance of probabilities on the material at that stage available, the iniquity exists. He considered that that conclusion was also properly rooted in the authorities.
On the second issue – the legal test for the relationship between the communication and the iniquity – Popplewell LJ held that for the exception to apply the communications must have been brought into existence as part of or in furtherance of the iniquity. “Part of” here includes documents which report on or reveal the iniquitous conduct in question, and may well have come into existence after the conduct is complete.
But he emphasised that, before one even gets to an analysis of whether the communication was created as part of or in furtherance of iniquity, one must first establish that it is an abuse of the lawyer/client relationship. A good example to which the exception simply would not apply in the first place would be the situation in which a document reporting potential fraud is created specifically to seek the advice of the lawyer as to whether what had been done was lawful or not.
Allowing the appeal, the Court held that the Claimant had established to the relevant standard, albeit on the necessarily limited material available at that stage, a case that abuse of his rights had taken place. Accordingly, Decherts’ disclosure exercise would have to be repeated taking into account the correct legal test for the iniquity exception.
Conclusion
The fraud exception to legal privilege is never going to be straightforward. The decision as to whether a document should be disclosed normally has to be made at an early stage in the proceedings, when the evidential picture may well not be particularly well developed. Those advising on disclosure, and judges dealing with it when disputed, must necessarily take decisions on partial information. That can create unfairness: it is often easier for a claimant to set out his evidential stall at an early stage than it is for a defendant. What may seem like a clear case of iniquity at the interlocutory stage may become much less obvious at trial. However, the decision cannot be avoided and the Al Sadeq case, in establishing a requirement for a balance of probabilities evidential test, is likely to provide a firmer basis for making these decisions in the future.
Difficulties remain – particularly in relation to what amounts to an “abuse” of the lawyer/client relationship. The distinction between a client seeking advice on past conduct and merely reporting on it is not, to my mind, necessarily an easy one. That is an area where one might expect to continue to see debate.
© Neil Hext KC of 4 New Square Chambers, 29 January 2024
This article is not intended as a substitute for legal advice. Advice about a given set of facts should always be taken.
