Out-Law / Your Daily Need-To-Know

Court of Appeal orders disclosure of legal documents due to ‘strong case’ for fraud

Out-Law News | 16 Mar 2020 | 4:41 pm | 2 min. read

The High Court in London has decided that a group of 240 investors can get access to documents held by an investment scheme’s lawyers because they have established a “strong case”, on the face of it, that the scheme was fraudulent. 

Litigation expert Emilie Jones of Pinsent Masons, the law firm behind Out-Law, said the ruling showed that a court will take into account the circumstances of a particular case when deciding whether documents should be disclosed, rather than applying a fixed test.

The group of investors put money in a scheme run by Anabus Holdings which was purportedly investing in gold dust. It closed in October 2010 and the investors are claiming for combined losses of more than €6.5 million.

They sought a court order for disclosure of documents held by Anabus’s lawyers, Dentons (known as Salans when it carried out the work), using the ‘iniquity exception' to legal professional privilege. Under the exception, legal professional privilege does not attach to communications between lawyer and client if the lawyer is instructed for the purpose of furthering crime, fraud or iniquity. Claimants wishing to rely on the exception need to show that, on the face of it, there is a case of fraud.

Jones said there had been a debate in previous cases about whether claimants needed to establish a “strong” or “very strong” case that, on the face of it, there had been fraud, with a more demanding standard of proof being appropriate where an allegation of fraud was one of the issues in the case.

The judge in this case, Master Clark, found that the right test in the particular circumstances of the case was that there had to be a “strong” case that, on the face of things, that there had been a fraud. Dentons did not put forward a positive case denying that there had been fraud.  Clark said the trial judge was likely to have to decide whether there had been fraud largely on the basis of the same documentary evidence which was available to her.  The master also took into account, in weighing up the competing interests involved, that Anabus was dissolved, so that the notion of its rights being invaded by allowing access to its privileged material had “a degree of artificiality”.

Master Clark explained that the test for a "strong" case, on the face of it, of fraud, set a lower threshold than the balance of probabilities; in other words, the investors did not have to show that it was more likely than not that there had been fraud.

She said that the scheme in this case had "the classic hallmarks of a fraudulent scheme" and that Dentons had been used to further the scheme by giving “comfort letters” to help encourage investment in the scheme. This was a purpose which fell outside the normal lawyer-client relationship and therefore privilege did not apply.

Fraud expert Andrew Barns-Graham of Pinsent Masons said the decision demonstrated that the iniquity exception can, in the right circumstances, provide a useful route for victims of fraud to get hold of important documents.

“This can be particularly significant in investment fraud cases, where, as here, the corporate vehicle through which the fraud has been perpetrated may have been dissolved. In such cases third party defendants such as professionals may be important targets, but they may be inhibited by concerns about privilege from handing over client documents, particularly in light of the Court of Appeal’s earlier finding in this case that privilege survives the dissolution of the client,” Barns-Graham said, referring to a Court of Appeal decision in the case last year which held that the investors could not access documents held by Dentons just because Anabus had been dissolved.

“If it can be shown that the documents in question were created in order to further a scheme which has key hallmarks of fraud, it may well be possible to show that the iniquity exception applies so that the documents should be disclosed,” Barns-Graham said.