Privilege does not prevail in gold dust fraud claim

Lee Victor Addlesee and others v Dentons Europe LLP [03.03.20]

Date published

13/03/2020

Sectors

Locations

In Lee Victor Addlesee and others v Dentons Europe LLP [03.03.20], the court has delivered helpful guidance on how the “iniquity exception” or “crime-fraud exception” applies to communications between lawyers and clients that would otherwise be privileged. The court confirmed that legal advice privilege did not attach to communications between a lawyer and a client where the lawyer was instructed for the purposes of furthering a crime or a fraud.

Judgment

An allegedly fraudulent gold dust scheme was set up by Anabus Holdings Ltd (now dissolved), a former client of Dentons. The Claimants are a group of around 240 investors in the Anabus scheme. Dentons (at the time Salans LLP), the Defendant, is alleged to have recklessly/negligently enabled Anabus’s scheme.

In a nutshell, Dentons had provided ‘comfort letters’ to potential investors proffering assurances including that, if the investors suffered a large loss, another of its clients would step in and pay up to US$100m if necessary. In doing so, Dentons is alleged to have afforded the fraudulent scheme ‘apparent respectability’ by endorsing it in the capacity of Anabus’s legal adviser.

Dentons sought to withhold disclosure of its former client’s files on the grounds of legal advice privilege. The Claimants argued that the iniquity exception applied. To succeed, the Claimants were required to show that there was evidence of wrongdoing in Anabus's instruction of Dentons. Dentons adopted a neutral position.

The Master agreed with the Claimants that the iniquity exception did apply and ordered Dentons to hand over the documents. Master Clark considered that Anabus’s scheme had “the classic hallmarks of a fraudulent scheme” and that the role of Dentons in furthering the scheme fell outside the ambit of the normal client/lawyer relationship.

While each case will turn on its own facts, the decision provides useful guidance of the following principles relevant to the iniquity exception:

  1. The burden of proof is high. The applicant must persuade the court that there is a strong and compelling case of fraud
  2. The iniquity must put the legal advice outside the normal scope of the lawyer’s professional retainer. If the court is satisfied that the conduct falls outside the normal client/lawyers relationship and that it represents an abuse, there will be no confidentiality in those communications
  3. The issue of fraud does not always need to be left to the trial judge to determine. A master or judge can make such a finding at an interlocutory stage on the basis of documents alone if the evidence permits them to do so
  4. The exception is not limited to circumstances where the lawyer or the client is a party to the iniquity. Even if Anabus had been an “unwitting tool” for the fraudulent purpose of another party, this would have served as sufficient grounds for the exception to apply.  

Comment

This judgment serves as a reminder that legal professional privilege is not absolute. It will be of particular interest to insurers of entities operating in jurisdictions where the potential for employees to be involved in bribery is increased.  

The scope of the exception is narrow, the burden of proving a compelling case of fraud is high and the courts will not rush to divest a party of the protection afforded by privilege. Notwithstanding, the court has shown a willingness to find that the exception applies when the evidence is there and it may serve as an invaluable tool for challenging privilege in a range of litigation contexts.

As the court has demonstrated that it is willing to grant these applications on the basis of documents alone at the interlocutory stage, it may be worth thinking about the exception at the early stages in the right cases - an early application could place the applicant in a strong position when it comes to negotiations.

Related item: Helpful clarification of dissolved companies’ entitlement to legal advice privilege