Nicola Sharp details a case where the court considered the circumstances in which the fraud exception is applicable to privileged documents.
In Flowcrete UK Ltd and others v Vebro Polymers UK Ltd and others  EWHC 22 (Comm) , the court considered the extent to which the fraud exception applies to documents that were disclosed inadvertently and were latterly alleged to be privileged.
The High Court refused an injunction to prevent the claimants’ use of privileged material. The claimants were allowed to use the documents, which the defendants said were disclosed inadvertently.
The defendants had brought the application, seeking injunctive relief to (i) prevent the claimants’ use of certain communications, which the defendants said were privileged and were inadvertently disclosed, and (ii) require the destruction by the claimants of those communications.
One of the key areas of dispute between the parties was the approach the court should take to documents that potentially reveal wrongdoing.
How the fraud exception applied
With documents that reveal wrongdoing, Mr Nigel Cooper KC (sitting as the High Court Judge) accepted the claimants’ position that two situations need to be distinguished in order to correctly analyse the position.
The first situation is where allegedly privileged documents evidence iniquity. It was accepted that iniquity was not at play in the current circumstances. Nevertheless, Mr Nigel Cooper KC provided a helpful reminder that documents that show evidence of immorality can never attract privilege. That is based on the maxim that there can be “no confidence in iniquity”. In other words, there should be no special treatment for documents that reveal unfair behaviour.
The second situation is more complicated: As a result of the potential wrongdoing or inappropriate conduct revealed in the material, or as a matter of justice, would it be wrong to restrain the use of inadvertently disclosed material by injunction? Or to put it another way, should the court allow the claimants to use the documents on grounds that it would be unjust to forbid it, because the documents revealed potential wrongdoing?
The claimants relied on Pickett v Balkind  EWHC 2226 (TCC) to resist the claim for injunctive relief. The test outlined in Picket is: would it be unconscionable for the recipient in the circumstances to seek to rely on the document to protect its interests? If it would not be unconscionable then it would not be appropriate to grant an injunction.
So from the claimants’ point of view; would it be unconscionable for them to seek to rely on the (allegedly) privileged documents to protect their interests? The court’s answer to that question was no. It would be fair and reasonable to allow the claimants to use the documents.
Arriving at that decision, Mr Nigel Cooper KC considered that the approach laid down in Pickett was correct as a matter of principle and within the sphere of the court’s equitable jurisdiction. He asked himself the question: would it be unjust and inequitable to grant the defendants the injunctive relief that they sought?
His decision was yes. It would be unjust and inequitable to grant the defendants injunctive relief and to deny the claimants the right to use the documents. It was not unconscionable for the claimants to rely on the documents to protect their interests.
His reasons for arriving at that decision were:
- Some of the documents in issue disclosed prima facie wrongdoing or inappropriate conduct.
- The level of wrongdoing or inappropriate conduct revealed in the documents should be considered on an individual basis.
- Wrongdoing or inappropriate conduct does not depend on dishonesty. It is wider in scope.
- One of the documents in issue raised questions as to whether a witness statement from one of the defendants contained his own independent evidence. That was sufficiently unconscionable to justify refusing the injunction.
The scope of the fraud exception
As a general rule, privilege is lost through fraud (the fraud exception). This means that legal professional privilege does not exist regarding documents which are part of fraudulent proceedings. Nor does it attach to communications that seek advice for the purpose of carrying out a fraud (whether or not the solicitor knew about the fraud).
It is generally held to be in the public interest that a solicitor is able to disclose documents evidencing criminality. Equally, a solicitor should be at liberty to disclose documents when a client seeks legal advice about crimes they plan to commit.
The fraud exception is not limited to legal advice privilege. It also applies to a claim to litigation privilege (Kuwait Airways Corp v Iraqi Airways Corp  EWCA Civ 286) and, in a wider sense, in relation to other forms of dishonesty.
Privilege is an essential principle in protecting the relationship between clients and their lawyers. But the law does not stand by and allow privilege to cloak dishonesty and fraud.