In the case of London Borough of Brent v Kane, the court considered an application for the disclosure of legal advice that was alleged to have been given for an iniquitous purpose such that the benefit of any privilege that might otherwise have attached to the document was lost.
The common law principle of iniquity is founded on public policy. It stipulates that the cloak of privilege may be lost if a communication or document that would normally be protected by privilege is used to conceal or further a crime, fraud, or other equivalent conduct.
The London Borough of Kent (the Local Authority) provided residential care to an elderly gentleman, Mr Kane, from October 2007 until his death in November 2013. The Local Authority had not, however, received payment for his care since 2009 and alleged that it was owed £162,650 by Mr Kane's estate.
The Local Authority alleged, among other things, that Mr Kane had transferred his 50 per cent share in a property (the Property) to his sons in April 2007 in an attempt to avoid paying for his future care. This was alleged to have represented a transaction an undervalue that had the purpose of defrauding creditors and therefore fell within section 423 of the Insolvency Act 1986.
Accordingly, the Local Authority sought disclosure of the legal advice given to Mr Kane and the sons in connection with the Property and related issues. Such documents would ordinarily attract privilege but the Local Authority contended that the iniquity exception applied. The sons sought to resist the application on the basis, inter alia, that the Local Authority had not produced any prima facie evidence of its suspicions.
The court found in favour of the Local Authority and ordered the sons to disclose the relevant documents. In so finding, the judge determined that the transactions had "the hallmarks of at least something underhand" and found there to be prima facie evidence to support the Local Authority's case that there may have been "sharp practice". He noted, however, that he drew no conclusions about whether the arrangements concerning the Property were unlawful or otherwise. That was not the issue. Rather, the court had to be satisfied that the Local Authority had "made out a prima facie case on the evidence that there was iniquitous conduct".
The court held that it was entitled to look at the whole chronology of events when considering whether there was evidence of iniquity. In this context, the judge commented that the relevant transactions were made at a time when Mr Kane lacked decision-making capability, and at a time when the sons knew that Mr Kane would need residential care and that the charges for this care would depend on Mr Kane's financial circumstances. In this connection, the judge held that the evidence:
"… turns the [Local Authority's] suspicions from mere speculation into a clear assertion backed up by prima facie evidence that there may have been transactions at an undervalue, and, or alternatively, an attempt to put Mr Kane's assets beyond the reach of the [Local Authority]".
This decision is a useful illustration of the court's approach to the iniquity exception where there is prima facie evidence to suggest that a transaction has been entered into with the intention to defraud creditors. The court was prepared to look at "the whole chronology of events" to establish a prima facie case of iniquity.