Under English law, legal professional privilege permits a civil litigant or a defendant in criminal proceedings to withhold from the other side documents subject to the privilege. Although privilege is a well-established concept, its boundaries are sometimes difficult to determine in practice. A recent judgment in the long-running dispute between Kazakh bank JSC BTA Bank and its former chairman Mukhtar Ablyazov provides insight into the so-called 'fraud exception' to privilege.(1)
Ablyazov was the chairman of JSC BTA Bank between May 2005 and February 2009. The government of Kazakhstan then took control of the bank and Ablyazov fled to London. From August 2009, the bank started a number of different actions against Ablyazov in London for defrauding the bank of more than $6 billion. In the course of these proceedings, Ablyazov was sentenced to 22 months' imprisonment for contempt of court. He fled to France in February 2012 to avoid this sentence. He is now in prison there, awaiting the outcome of extradition proceedings triggered by requests from Russia and Ukraine.
Ablyazov maintains that the English actions are entirely politically motivated and, at various times, he instructed three different law firms to advise him and fight the litigation against him. The bank has nevertheless succeeded in obtaining judgment in London against Ablyazov for more than $4.6 billion to date. However, it has been able to secure only around $100 million from Ablyazov's assets and to identify a further $800 million in assets which are believed to be beneficially owned by Ablyazov.
Ablyazov has acknowledged that he deliberately hid his assets in order to put them out of reach of the Kazakh government. However, in addition to Ablyazov's financial manoeuvres – legitimate or otherwise – successive judges have found that Ablyazov:
- failed to disclose information about his assets which the court required him to disclose;
- lied under oath about his assets;
- dealt with his assets in breach of court orders; and
- arranged the backdating of documents.
As one judge put it: "It is difficult to imagine a party to commercial litigation who has acted with more cynicism, opportunism and deviousness towards court orders than Mr Ablyazov."
The bank has therefore taken steps to obtain documents and information from third parties in order to find Ablyazov's assets. In the latest skirmish in this hard-fought litigation, the bank sought disclosure from Ablyazov's three law firms of documents referring to his assets. These documents would normally be considered privileged and so protected from disclosure. Therefore, the question was whether the bank could rely on the 'fraud' or 'iniquity' exception to privilege.
Under English law, the categories of privilege are broadly settled as:
- confidential communications between a lawyer and his or her client for the purpose of giving or receiving legal advice ('legal advice' privilege); and
- confidential communications between either a client or its lawyer and a third party for the purposes of litigation ('litigation' privilege).
However, privilege will not apply when a client consults a lawyer to further any criminal or fraudulent purpose, regardless of whether the lawyer is aware of the purpose.
This exception may be relatively easy to apply in the case of legal advice privilege, as the focus will be on the nature of the transaction in which advice is sought. Litigation privilege is more difficult if the exception is not to drive the proverbial 'coach and horses' through the privilege, since it is not unknown for parties to litigation to give their lawyers false information. As a result, the courts have held that in the "ordinary run of cases", litigation privilege will not be excluded "merely because [a] communication [by a client to its lawyer] is untrue and would, if acted upon, lead to the commission of the crime of perjury". When, then, does a situation fall outside of the "ordinary run of cases"?
In this case, the court held that "[i]f the iniquity puts the advice or conduct outside the normal scope of [the] professional engagement, or renders it an abuse of the relationship which properly falls within the ordinary course of such an engagement", the relevant communications will not be confidential and therefore will not attract privilege. It gave short shrift to the arguments advanced by Ablyazov that such an analysis would result in a breach of his rights under Articles 6 or 8 of the European Convention on Human Rights (the right to a fair trial and the right to respect for private life and correspondence). Both rights were qualified by reference to the need to uphold the public interest in the administration of justice and the rule of law.
Given the history of the litigation, it was not difficult for the bank to persuade the court that there was a strong prima facie case that, from the beginning, Ablyazov "was bent on a strategy of concealment and deceit in relation to his assets which would involve perjury, forgery and contempt as and when such was required for that purpose", although there was no suggestion that any of the three law firms were involved in that strategy. As such, the court held that:
- Ablyazov had abused the normal relationship between a lawyer and client;
- there was no confidence in the communications which were made in furtherance of his strategy; and
- privilege would not apply to those communications.
The court accepted that not all communications between Ablyazov and his lawyers would fall into this category. Litigation privilege would continue to apply to communications which were primarily concerned with the defence of the claims on the merits. However, the documents requested by the bank were communications concerning or containing information about Ablyazov's current and former assets. The court considered that such communications would be in furtherance of Ablyazov's iniquity. It ordered disclosure of the documents held by the three law firms.
The judge also dismissed Ablyazov's argument that disclosure should be prevented to protect Ablyazov's privilege against self-incrimination. In line with existing case law, the judge held that the privilege against self-incrimination could apply only to documents that Ablyazov had been compelled in law to create. The documents in this case had not been created in those circumstances.
In the context of this case, the court's order is unlikely to make much immediate practical difference. Ablyazov has refused to pay the substantial costs of the extensive review process that would be required and the bank is unwilling to pay them. The documents sought by the bank will therefore remain with the three law firms, unless and until the circumstances change.
From a broader perspective, it is difficult to see what the court's formulation of the test for the fraud exception will change. While the possibility of obtaining otherwise privileged documents remains a useful tool in the litigator's armoury, the test in substance appears to be a question of the egregiousness of the alleged iniquity or fraud. The court acknowledged that this would often be "a question of fact and degree". As a result, if fraud or iniquity is suspected, an order from the court is always likely to be needed to confirm whether litigation privilege has been excluded.
For further information on this topic please contact Simon Hart or Davina Given at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) JSC BTA Bank v Ablyazov  EWHC 2788 (Comm).