Fraud exception to privilege applies to joint retainer documents even where one client is innocent (High Court)

Both legal advice privilege and litigation privilege may be lost if the communication or document in question came into being for the purpose of furthering a criminal or fraudulent design. See Kuwait Airways Corporation v Iraqi Airways Company [2005] EWCA Civ 286 for a summary of this principle. This is sometimes known as "the fraud exception". The principle is founded on public policy.

Parties may retain the same solicitor to advise them on a transaction. If so, they are entitled to see any privileged communications to which they have not been party and are not entitled to claim privilege against each other in respect of those communications in any subsequent litigation (see The Sagheera [1997] 1 Lloyd's Rep 160). When accepting instructions from two or more parties, solicitors should advise their clients about the consequences of the joint retainer.

For more on privilege, the fraud exception and joint retainers, see Practice note, Privilege: an overview.

Allseas Group SA (Allseas) was the parent company of the claimant, Group Seven Ltd (G7). G7 was incorporated in Malta as part of a scheme to enable Allseas to invest in what it hoped would be a low-risk, high yielding, short-term investment. G7 opened a Maltese bank account, and Allseas transferred EUR100 million into it. G7 then entered into an agreement to participate in a private placement programme, which would involve a Mr Nobre opening the door to the anticipated profits.

The EUR100 million were transferred to certain investment vehicles and then, allegedly on the advice of Mr Sultana, to the client account of some legal practitioners in London called Notable Services LLP (Notable). However, instead of the money being invested in the discounted bills, as G7 anticipated, some payments were made for the benefit of Mr Nobre and other payments were made to other individuals or companies connected with them. Notable then became uncomfortable with the nature of the payments that they were being asked to make, and they appear to have declined to deal further with the balance of some EUR88 million still in their accounts. The police began investigating the transaction as one involving suspected fraud and money laundering, and arrested Mr Nobre.

Mr Nobre instructed Mishcon de Reya to act for him in civil and any associated criminal proceedings relating to the freezing of the money by Notable and subsequently under the Proceeds of Crime Act 2002. Despite knowing about Mr Nobre and his actions from the police, Allseas/ G7 decided to instruct Mishcons jointly with Mr Nobre and his company, Larn Ltd, to obtain the unfreezing of the funds. Mishcons effectively entered into two retainers, acting for Mr Nobre and Larn Ltd alone for about two weeks, and then acting on a joint retainer for Mr Nobre and Larn Ltd and for Allseas/ G7 for a further week. Mishcons explained that there could be no confidentiality between these parties, and they all accepted that this was the consequence of a joint retainer.

G7 brought proceedings against various defendants, including Mr Sultana, for making false and fraudulent representations that induced G7 to make the investments. In the present application, Mr Sultana applied for disclosure of materials held by Mishcons, and the issue was whether they were protected by legal professional privilege. Mr Sultana submitted that legal professional privilege could not apply to material generated in the context of a fraud. Further, when Allseas/ G7 retained Mishcons, they were being used as "innocent aiders and abettors" to help Mr Nobre further his fraud by getting his hands back on the money that had been frozen, thereby assisting a fraudster in the execution of his scheme. Therefore, the material generated during the course of both retainers fell within the fraud exception.

Norris J ordered disclosure.

He took two points in particular from the decision in Kuwaiti Airways Corporation:

He took note of three additional points, referred to in Matthews and Malek, Disclosure, (Sweet & Maxwell, 4th ed, 2012):

Norris J held that fraud was not seriously in issue in these proceedings: the facts were such that none of the defendants could seriously argue that there was no fraud. Therefore, the fraud exception to the right to claim privilege was in play.

He did not accept G7's argument that, even if he decided to order disclosure of the documents passing between Mr Nobre/ Larn Ltd and Mishcons because there was a strong prima facie case of fraud, he should not make the same order in relation to documents passing between Allseas/ G7 and Mishcons because they were innocent victims. Rather, given that Allseas/ G7 retained Mishcons to assist Mr Nobre in the recovery of the money from the freezing regime to which it was subject, the judge held that disclosure was appropriate as against them because they were engaged in furtherance of the fraud, albeit innocently.

The decision serves as a useful reminder of the scope of the fraud exception to the protection provided by legal professional privilege and another illustration of when the exception may arise.

It is of particular interest that the issue of whether the fraud exception should apply arose in the context of a joint retainer where one of the clients was "innocent" in that it was not responsible for the fraud and, indeed, appears to have been the victim of the original fraud. Despite this, the fraud exception applied to that party's communications with its lawyers, as well as to the fraudster's communications with the lawyers. This was on the basis that (by jointly retaining Mishcons with the aim of obtaining the unfreezing of the funds) the innocent party was effectively furthering the fraud.

Group Seven Ltd v Allied Investments Corporation Ltd and others [2013] EWHC 1423 (Ch) (21 February 2013).