UK: Iniquity Exception To Privilege JSC BTA Bank v Ablyazov

Last Updated: 28 August 2014
Article by Richard Caird, Sam Coulthard and Alexandra Doucas

This judgment considers the iniquity exception to legal professional privilege and the point at which a client conducts himself so dishonestly that the very advice given or litigation pursued by the solicitor is in furtherance of a fraud or crime, and no longer has the benefit of absolute protection from disclosure. The case is JSC BTA Bank v. Mukhtar Ablyazov and others [2014] EWHC 2788 (Comm).

Communications between a solicitor and his client for the purposes of seeking or giving legal advice, or for the purposes of litigation, are normally privileged. The principle is that clients should be able to speak freely to their lawyers without fear of their communications being made known to others. Sometimes in the course of those communications, a client will instruct a solicitor to pursue a case which the client knows to be false. The question considered by this judgment is the point at which the client conducts himself so dishonestly that the very advice given or litigation pursued by the solicitor is in furtherance of a fraud, crime or similar iniquity by the client. In those circumstances, the communications between a solicitor and his client which would normally be subject to legal professional privilege can be held not to have the benefit of that absolute protection from disclosure (the iniquity exception).

The litigation between JSC BTA Bank (the Bank) and Mukhtar Ablyazov, its former chairman, who allegedly defrauded it of more than US$6 billion, has kept the courts and a number of lawyers busy for more than five years now. The latest judgment to emerge from this ongoing battle relates to whether the iniquity exception applies to communications between Mr Ablyazov and the three firms of solicitors he instructed during that period: Clyde & Co, Stephenson Harwood and Addleshaw Goddard (which still acts for him).

Background

The Bank has been pursuing Mr Ablyazov since 2009 and currently has unsatisfied judgments against him for amounts in excess of US$4 billion. The proceedings started with a worldwide freezing order being made against Mr Ablyazov which also required him, in the usual way, to provide disclosure of his assets. Mr Ablyazov was plainly somewhat reluctant to do that, and the judgment (together with the Bank's appended statement of case) recites in some detail the findings of successive judges that Mr Ablyazov had concealed assets, dealt with them in breach of the freezing order, lied to the court and (where necessary) forged documents to support his false evidence.

Mr Ablyazov fled the jurisdiction before he could be sentenced for his contempt, and was debarred from defending the claims against him. He is currently in prison in France, from where his extradition is sought. The Bank, meanwhile, is attempting to piece together such information as it can about his assets (held through numerous intermediaries and special purpose vehicles) in order to enforce its judgments. In this application it sought disclosure from Mr Ablyazov's current and former solicitors in order to assist its enforcement efforts.

The iniquity exception to legal professional privilege

Principles of the exception

The question of whether privilege does or does not exist is vital: as Mr Justice Popplewell (the Judge) made clear, if privilege attaches to a document, it is inviolate and the document cannot be disclosed without the client's consent, whatever the competing reasons for which it should be.

As set out above, the general principle is that legal professional privilege does not exist (in respect either of legal advice privilege or of litigation privilege) where the advice or litigation is in furtherance of a fraud, crime or similar iniquity.

That does not mean that the iniquity exception applies in every case where an unwitting solicitor is instructed by his client to put forward an untruthful case. Where someone has stolen a car and, on being accused of doing so, instructs his solicitor that he was at home watching television at the time, it is likely that this will result in false statements being made to the court, and eventually to the commission of perjury. However, the law says that in this "ordinary run of cases", communications between solicitor and client will still be privileged (unless the solicitor knows of the lie and advances it anyway).

The question considered by the Judge was the distinction between "the ordinary run of cases" and those exceptional cases in which the iniquity exception applies. He held that the answer lay in an analysis of three matters:

  1. that communications between solicitor and client which are privileged are confidential, the quality of confidence being "the bedrock of the rationale for the privilege as essential to the administration of justice";
  2. that communications between solicitor and client for an iniquitous purpose negate the necessary condition of confidentiality; and
  3. that the reason why such communications are not confidential is that only communications made in the ordinary course of the professional engagement of a solicitor are confidential.

By way of illustration, if the solicitor in the example above knows that his client was not at home at the relevant time and that he did steal the car, but assists him in putting forward a false case anyway, that solicitor is not acting in the ordinary course of his occupation (it not being the usual occupation of solicitors to deceive the court), and there is no privilege. The solicitor does not, however, need to be a party to the deception in order for the iniquity exception to apply, and indeed in this case it was not suggested that any of the three firms involved were.

The authority from which the iniquity exception is derived (R v. Cox and Railton) helpfully summarises the position in this respect. In order for privilege to exist, there must be both professional confidence and professional employment. Where communications between solicitor and client take place for an iniquitous purpose, either the solicitor is party to that purpose (in which case there is no professional employment), or he is not and is deceived by his client (in which case there is no professional confidence).

The Judge's distillation of these principles was that the "touchstone" was whether or not the relevant communication was one in which the solicitor was acting in the ordinary course of his professional engagement. The Judge went on to say: "If the iniquity puts the advice or conduct outside the scope of such professional engagement, or renders it an abuse of the relationship which properly falls within the ordinary course of such an engagement, a communication for such purposes cannot attract legal professional privilege. In cases where a lawyer is engaged to put forward a false case supported by false evidence, it will be a question of fact and degree whether it involves an abuse of the ordinary professional engagement of a solicitor in the circumstances in question."

The Judge rejected any suggestion that this interpretation of the law was not open to him as a result of the European Convention on Human Rights, in particular Articles 6 and 8.

Application to this case

Having established the principles, the Judge went on to consider whether, as a "question of fact and degree", the iniquity exception applied in this case. It was suggested on behalf of Mr Ablyazov that, although the sums in issue here were very large, there was nothing as a matter of principle to take this case out of the "ordinary run". It was different only in scale, not in substance.

The Judge disagreed. He found that there was "at least a very strong prima facie case" that Mr Ablyazov was "bent on a strategy of concealment and deceit in relation to his assets which would involve perjury, forgery and contempt as and when such was required for that purpose" from his first instruction of solicitors. On that basis, the Judge held that the iniquity exception applied.

To what would it apply, though? The iniquity exception extends only to communications which further the iniquity, not to any communications between solicitor and client. Advice on the merits of Mr Ablyazov's underlying defence for example would not have been given in furtherance of that purpose, whereas communications relating to Mr Ablyazov's assets and his dealings with them would. It was suggested on behalf of both Mr Ablyazov and Stephenson Harwood that the real iniquity in respect of which the relief was sought was not the making of false allegations in relation to assets through the firms of solicitors, but the concealment of assets from them. On that basis, it was said that the communications between Mr Ablyazov and his advisers in relation to his assets could not be subject to the iniquity exception. Mr Ablyazov also argued that, as some of the evidence he gave in relation to his assets was true, not all communications in relation to it should attract the iniquity exception. Perhaps unsurprisingly, these arguments were unsuccessful, the Judge holding that putting forward a deliberately incomplete picture could equally form part of an attempt to deceive and evade.

An interesting point, particularly for those with the unenviable task of complying with an order for disclosure in these circumstances, was how to treat communications which had a dual purpose, one legitimate and one not. The Judge held that in such circumstances the "dominant purpose" test used to establish whether or not a document is privileged should apply. The question to be asked was not, however, whether the dominant purpose of the creation of the document was the furtherance of the iniquity. Instead, it was whether the dominant purpose was the conduct of litigation in the normal way. On that basis, if a document had equally dominant purposes of furthering the iniquity and conducting the litigation, the document would not be privileged.

Discretion

The Judge's decision that there were categories of documents in the hands of Mr Ablyazov's current and former solicitors to which privilege did not attach was only the first stage in the Bank's application. It then had to convince the Judge that he should exercise his discretion in favour of ordering a disclosure exercise on a massive scale. The volume of documents (particularly emails and other electronic documents) held by the three respondent firms is unsurprisingly very large. They agreed too that this was not a case in which searches could be limited by keyword. This meant that each firm would have to review the entire content of its files, at an estimated cost of £2.5 million.

Faced with a task on this scale, Mr Ablyazov and Stephenson Harwood submitted that the benefit the Bank was likely to gain did not justify the exercise. They made the reasonable point that the Bank alleged that Mr Ablyazov had concealed assets: if his solicitors had documents indicating the existence and whereabouts of undisclosed assets, they would have been obliged to disclose them or come off the record if Mr Ablyazov had not allowed them to do so. There would therefore be nothing useful in their records to find.

The Judge was not dissuaded by this argument. He took the view that the Bank, in seeking to piece together the jigsaw of Mr Ablyazov's assets, might well benefit from the fuller information in relation to his disclosed assets which was likely to be found in his correspondence with his solicitors. He also thought that it was "not fanciful to suppose" (in essence) that there might be stray references in communications to other assets, which would assist the Bank's investigations.

The Judge was also swayed by the value of the Bank's claim and the point that (as he put it), even if it was looking for a needle in a haystack, the needle could be very valuable.

Interestingly, the Judge also considered it a relevant factor that Addleshaw Goddard was still funded to pursue the litigation on Mr Ablyazov's behalf. That funding apparently came, at the time of the hearing, from a specific company which (it had previously been held) there was reason to suppose to be beneficially owned by Mr Ablyazov. The Judge considered that Addleshaw Goddard's own investigations into that company (in order to comply with its regulatory obligations, and to make sure that it did not breach the freezing order against Mr Ablyazov) might well assist the Bank.

Two further points were advanced on behalf of Mr Ablyazov in relation to the court's discretion. One was that the court could not assess the helpfulness or otherwise of disclosure because the Bank had not particularised its current knowledge as to Mr Ablyazov's assets. The Judge held that he did not need this level of particularity to reach a decision and, moreover, that the Bank could not be expected to show its hand in the circumstances. The second (unattractive) point related to the costs of the exercise. It was agreed that they should not be borne by the three firms involved, but nor did the Bank wish to pay them. Mr Ablyazov (on whom the cost burden should properly fall) stated that he would not and could not pay those costs either, and that on that basis, the court should not make a pointless order. The Judge disagreed, noting that it would require exceptional circumstances for the court to say that it would not make an order merely because the respondent had pointed out in advance that he did not intend to comply with it.

Privilege against self-incrimination

The judgment also contained a detailed consideration of whether Mr Ablyazov was entitled to withhold disclosure on the basis that it would tend to expose him to criminal proceedings. Not all of the points advanced by the parties in this respect are summarised here, but the judgment provides a useful reminder and clarification in relation to one particular issue.

The Judge's view (which he had expressed in a different case) was that the privilege against self-incrimination could only be invoked in relation to evidence or documents the creation of which was compelled by the court. It did not apply to documents which had a separate existence. This principle was challenged unsuccessfully on behalf of Mr Ablyazov, but it was also said that even if it was correct, the relevant communications here were brought about as a result of various orders of the court in the proceedings. The Judge drew a distinction between situations where documents come into existence as a result of the compulsion of the court, and situations where a court order provides the "occasion or motive" for a document's creation.

Conclusions

The conclusions to be drawn from this judgment fall, on one interpretation, under two headings. The first of those is purely technical, in that the judgment provides a helpful summary of an exception to the usual rules relating to privilege. The key points in this regard are perhaps these:

  1. Where there is a suggestion that a client has lied to the court and used his solicitors to further some fraudulent purpose, it is possible that the iniquity exception will apply to communications between solicitor and client which would normally be privileged. Where that possibility exists, the main consideration will be whether the iniquity has taken the solicitor outside his usual professional role.
  2. The iniquity exception only applies to communications the purpose of which is to further the iniquity.
  3. Where the iniquity exception applies, its consequences may be severe. Arguments in this case that the mischief lay not in what was communicated to solicitors but what was left out were unsuccessful.
  4. Where the iniquity exception applies, a document with a dual purpose (legitimate and iniquitous) will not be protected by privilege unless the dominant purpose for its creation can be shown to be legitimate.

The second broad heading is, arguably, that this judgment is a further reminder of the lengths to which courts will go to help judgment creditors who face evasion and obstruction. In those circumstances, judgment creditors need both creativity and as much information as they can get about their quarry. The Bank's application was, presumably, directed at both those things, and may have the side-effect of making it increasingly difficult for Mr Ablyazov to instruct or pay solicitors here. It is unsurprising that the court was willing to go so far to help, in circumstances where its own orders had been systematically ignored.

JSC BTA Bank v. Mukhtar Ablyazov and others [2014] EWHC 2788 (Comm)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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