Communications between solicitor and client: fraud exception to legal advice privilege

The High Court has reaffirmed the “fraud exception” to the rule of legal advice privilege (LAP) which usually protects communications between a client and their solicitor from disclosure to third parties. Under the fraud exception, no privilege attaches to such communications if the lawyer is instructed for the purpose of furthering crime, fraud or iniquity even where the lawyer or client is unaware of the wrongful purpose. The High Court’s decision, which involved an extensive review of the existing caselaw in this area, stands alongside and in sharp contrast to the earlier unanimous decision of the Court of Appeal in the same litigation that LAP is a “fundamental human right” which may endure even when the client has themselves ceased to exist.

Background

LAP is a long-established right in common law doctrine. It prevents communications between a client and their solicitor for the purposes of obtaining legal advice from being disclosed to any other party. In this case, the claimants lost money that they had invested in a scheme operated by a Cypriot company called Anabus, which had since been dissolved. The defendants were Anabus’ former solicitors. The claimants sued the solicitors for damages for deceit and negligence, claiming that the scheme was fraudulent.

The claimants applied to the court for an order requiring the solicitors to disclose documents from their files relating to the scheme which had passed between them and their former client. The claimants submitted two alternative bases for that order. First, that any LAP preventing that disclosure had ceased when the defendants’ former client company was dissolved. Second (and in the alternative), that the fraud exception applied. The court heard each of these arguments separately. The defendants opposed the claimants’ first argument, that their former client’s documents had ceased to be protected by LAP. At the hearing of the claimants’ second argument relating to the fraud exception, however, the defendant adopted a neutral position, although its counsel made submissions about the applicable law and possible inferences from the documents.

First hearing

In considering the first of those two arguments in October last year, the Court of Appeal concluded that it is not necessary for a client to assert LAP, once it exists, but for those seeking disclosure to establish that LAP has been voluntarily waived. If they could not, then LAP would continue to exist, indefinitely. As a result, the court concluded that LAP survives both the death of a living person or, in this case, the dissolution of a corporation.

The Court of Appeal also ruled that, although the communications to which LAP attaches have passed between a client and their lawyer, the lawyer cannot waive it on their client’s behalf. On the contrary, the Court of Appeal approved the High Court’s decision in the case of Nationwide Building Society v Various Solicitors (1999) that it is the lawyer’s duty to assert their client or former client’s right to LAP. In order to fulfil that duty, a lawyer may, and in fact must, act to uphold their client’s LAP, and is therefore entitled to appear in opposition at the hearing of such applications, even though they may have no instructions and may not recover their costs of doing so.

Second hearing

However, on the recent hearing of the claimants’ second ground for requesting disclosure, the High Court has ruled that, due to the fraud exception, no LAP attached to the documents sought in the first place. The applicable legal principles were not the subject of significant dispute and the court re-affirmed that the instruction of a solicitor for a fraudulent purpose, by going outside the ordinary scope of a lawyer/client relationship, was an abuse of the lawyer/client relationship which LAP is intended to protect.

The High Court also reiterated that the fraud exception applies even in cases where both solicitor and client are unaware of the fraud or wrongdoing, provided that, in the client’s case, he is being used as an unwitting tool to further a third party’s fraud. Additionally, the exception will continue to apply to communications made after the fraud or wrongdoing has been committed, if the lawyer is still being instructed for the purposes of furthering the wrongdoing, such as concealing the fraud or wrongdoing, or its proceeds.

On the facts of this case the court was satisfied that the claimants had shown a strong prima facie case that the underlying scheme was fraudulent and that the defendant was instructed for the purpose of furthering the scheme. It therefore held that the fraud exception applied and the documents sought were not privileged.

It is important to note that the doctrine of legal advice privilege considered by the court is separate and distinct from litigation privilege, which is governed by different rules and is unaffected by this decision.

Comment

The earlier decision of the Court of Appeal in this case will be of comfort to solicitors who find themselves facing applications for disclosure, whether as a party to litigation as the defendants were here, or as a non-party. However, the recent High Court judgement reiterates that LAP is not absolute and is subject to the fraud exception.

Whilst solicitors have a clear obligation to take steps to preserve their client’s privilege where it is there, the fraud exception may mean that this privilege has never attached to the communications to begin with.

Further Reading:

Lee Victor Addlesee v Dentons Europe LLP [2020] EWHC 238 (Ch).