Court of Appeal clarifies the test for the “iniquity exception” to privilege

The judgment confirms that:

• the evidential test for the “iniquity exception” to privilege is that iniquity must be established on the balance of probabilities;
• non-parties are able to assert litigation privilege; and
• the restrictive definition of “the client” from the seminal case of Three Rivers District Council & others v Governor and Company of the Bank of England (No 5) [2003] EWCA Civ 474 (“Three Rivers (No 5)”) does not apply to litigation privilege.

In a commercial context, applications under the iniquity exception are most likely to arise in civil fraud cases, in which those with conduct of the disclosure exercise will need to be mindful of the Court’s expectation that parties consider whether the exception may apply in light of the more simplified pro-claimant test. The decision may mean that we see an increase in claimants asking defendants to consider whether the exception arises at the disclosure phase, with a resultant increase in applications being brought.

The case also serves as another reminder that the disclosure exercise is very often contested. It is therefore important for those conducting the disclosure exercise to keep a careful record of the exercise undertaken and the rationale for treating particular documents or categories of documents in a certain way.

Background

Mr Al Sadeq, a Jordanian lawyer, was arrested at his home in Dubai on 5 September 2014 and taken from Dubai to Ras Al Khaimah (RAK), where he was eventually tried and convicted of fraud. He has been imprisoned ever since. Mr Al Sadeq alleges that he was subjected to inhuman or degrading treatment and torture, denied legal representation, forced to give false evidence and had various threats made against him and his family.

From 2013, Dechert was engaged by Ras Al Khaimah Investment Authority (RAKIA) in connection with an investigation into alleged frauds. Mr Al Sadeq claims that the law firm, Dechert, and three of its former partners (the Partners) were complicit in the extraordinary rendition of Mr Al Sadeq to RAK, and complicit in his torture while he has been held in captivity.

The allegations made against the Partners include that they interrogated Mr Al Sadeq on several occasions, during which they made threats against him and his wife and children, and told him that they had the power to improve his conditions of detention if he cooperated with the investigation into the alleged misdeeds of another individual, Dr Massaad.

Against that backdrop, Mr Al Sadeq has brought claims in the English High Court against Dechert and the Partners seeking compensation for the harm he has sustained since his rendition and detention in RAK. 

The Court of Appeal judgment relates to an application brought by Mr Al Sadeq against Dechert and the Partners in which he sought additional disclosure on the basis that they had misapplied privilege in a number of key respects in their original disclosure exercise.

The Iniquity exception

The “iniquity exception” to privilege prevents a communication which has come into existence in furtherance of a fraud, crime or other iniquity from attracting legal professional privilege. The principle was formerly referred to as the “fraud exception”, but given its scope extends beyond fraud to other forms of iniquity, including acts contrary to public policy and the interests of justice, it is now most commonly called the “iniquity exception”. For the exception to be engaged, the iniquity must put the conduct outside the normal scope of lawyer/client engagement.

The parties disagreed as to the threshold that must be met to demonstrate iniquity such that the exception applies. There have been several judicial comments on this point over time, but it has not been definitively clarified until now.

The Court of Appeal found that the test was whether there was a prima facie case of iniquity, and disregarded embellishments that had been considered in previous cases, such as “strong” or “very strong” case. The arguably simplified and more pro-claimant test means that whether there was iniquity falls to be determined on the balance of probabilities by the relevant decision maker. The relevant decision maker is the party or legal adviser determining whether to give or withhold disclosure, or the Court on an interlocutory application. The test is the same whether or not the iniquity claimed forms part of the issues in the proceedings.

In short, those with conduct of the litigation will have to form a view as to whether, on the evidence available at the time, the existence of the iniquity is more likely than not. It was acknowledged that, as cases progress and further material becomes available, a reconsideration may become necessary. 

Applying these principles to Mr Al Sadeq’s application, the Court of Appeal found that Mr Al Sadeq had met the requisite threshold of establishing a prima facie case of three categories of iniquitous conduct: (1) unlawful detention, (2) detention in conditions amounting to torture and inhuman or degrading treatment, and (3) prevention of access to legal representation.

Having formulated the test for determining whether there is iniquity, the Court then gave guidance as to what documents are caught by the exception. The formulation favoured by the Court of Appeal is that, where the iniquity exception is engaged, there is no privilege in documents and communications brought into existence as part of or in furtherance of the iniquity. The Court of Appeal’s formulation captures:

• documents brought into existence in preparation for the iniquity; and
• documents which report on or reveal the iniquity, whether they came into existence before or after the iniquity is complete.

The Court of Appeal emphasised that it may be important to distinguish, on a document-by-document basis, whether the iniquity exception applies. The following hypothetical example was given: had Dechert, during the course of their retainer, held a document which recorded information about the unlawful conditions in which Mr Al Sadeq was being held, that document would be disclosable. In that example, Dechert would be “an innocent tool” in the course of their client perpetrating an iniquity, and the iniquity exception would apply. However, were the same information provided to Dechert in order to seek Dechert’s advice as to whether or not the detention was or had been unlawful, the iniquity exception would not apply. In the second scenario, the relationship between Dechert and its client is not an abusive one.

The Court of Appeal found that Dechert had applied the wrong test, and as a consequence the disclosure exercise would have to be re-done.

Litigation privilege and third parties

Litigation privilege attaches to communications between a lawyer and its client, or one of them and a third party, which are brought into existence for the sole or dominant purpose of use in the conduct of existing or contemplated adversarial litigation.

Mr Al Sadeq claimed that Dechert’s clients were not actual or contemplated parties to criminal and extradition proceedings that had been brought against Mr Al Sadeq. The effect of this – Mr Al Sadeq argued – was that litigation privilege could not arise in Dechert’s clients’ favour in relation to communications between them and Dechert, sent in the context of those proceedings. 

The Court of Appeal was therefore asked to determine whether litigation privilege can be claimed by non-parties in legal proceedings. It held that it could, and that there was no principled reason to limit the scope of litigation privilege to litigation to which the person is a party.

This means that non-parties such as: liability insurers who have the conduct of proceedings to which their assured are a party; witnesses seeking advice as to whether to give assistance; victims of crimes; and litigation funders, are all entitled to benefit from litigation privilege, notwithstanding that they are not parties to the actual or contemplated legal proceedings.

The related issue of whether a party must have a “sufficient interest” in proceedings to which they are not party in order to take advantage of litigation privilege was not determined. Cases where the dominant purpose limb of the test is satisfied but the person is a stranger to the litigation are likely to be rare, and in any event Dechert’s clients plainly had a sufficient interest and were able to rely on litigation privilege in the context of the extradition and criminal proceedings in RAK.

Three Rivers (No 5)

Three Rivers (No 5) establishes that a company’s legal advice privilege only arises in respect of communications between a lawyer and a narrow subset of a company’s employees or officers who have been tasked with procuring and receiving legal advice on behalf of the company.

The principle has attracted extensive criticism over the last 20 years and has not been followed in other jurisdictions. However, it remains binding in this jurisdiction on all courts below the Supreme Court.

Mr Al Sadeq argued that the principle should also apply to litigation privilege, such that only communications with those individuals within Dechert’s clients who were specifically authorised to conduct litigation would attract litigation privilege.

The Court of Appeal rejected this argument and held that the principle does not extend to litigation privilege. Litigation privilege arises in respect of communications with third parties, whereas legal advice privilege does not, so the Court of Appeal reasoned that while it is necessary for the purposes of the test for legal advice privilege to define which natural persons constitute the “client”, it is not necessary to do so for litigation privilege, which can extend to persons who are not part of the limited class who are authorised on a company’s behalf to procure and receive legal advice.

Comment

The iniquity exception is invoked relatively infrequently. As such, it is a point of law that is not always well-understood. The Court of Appeal’s judgment is of considerable assistance to parties needing to apply what may have been a poorly understood test. We now have appellate authority that privilege does not attach to documents created as part of or in furtherance of an iniquity where it is more likely than not that such iniquity exists.

The Court of Appeal’s endorsement that non-parties are able to assert litigation privilege is also significant. In upholding the first instance judge’s conclusion on this point, the Court of Appeal has confirmed that commentary in three legal textbooks, all of which asserted the contrary, is wrong. The availability of litigation privilege, provided the usual test is met, for third parties such as insurers, group litigants who are not parties in their own names, and possibly funders, is likely to be welcomed as pragmatic for modern litigation.

Our Experience

Macfarlanes acted for the applicants in a successful application under the iniquity exception in July 2023, in the case of Enigma Diagnostics Ltd & Ors v Boulter & Ors [2023] EWHC 1999 (Ch) (28 July 2023).