Case Alert - [2018] EWHC 23 (Comm)

Judge considers the "iniquity exception" to a claim for privilege and whether one party can waive common interest privilege

Prior caselaw has established that, where the claimant's car has been damaged by the at-fault defendant, and the claimant hires a replacement car on credit terms, even though he could have afforded to hire one without credit terms, the damages recoverable for the loss of use of the damaged car will only be the basic hire rate ("BHR") of the replacement car (ie the hire rate stripped of the cost of any "credit" elements).

The claimant in this case is a car hire company. It has established that Autofocus Limited ("AF"), which was hired by the insurers of at-fault drivers, was involved in a widespread systematic fraud whereby the company fabricated evidence to show that the BHR was lower than the hire rate charged by the claimant. AF is now in liquidation and this action is brought against AF's former directors and the solicitors of the at-fault drivers.

Following disclosure by the parties, the claimant sought inspection of documents over which the solicitor defendants asserted privilege. The claimant in turn argued that the "iniquity exception" defeated this claim for privilege. This exception provides that no legal professional privilege can be asserted "in respect of documents which are in themselves part of an iniquitous proceeding or in communications made in order to obtain advice for the purpose of carrying out iniquity".

The exception does not depend on whether or not the lawyer is party to any iniquity. In this case, it was not alleged that the solicitor defendants' clients (the drivers or their insurers) were involved in any impropriety. Smith J reviewed earlier caselaw and concluded that "in cases of third party iniquity, privilege is overridden only where the client was the wrongdoer's tool or, if it be preferred, mechanism for his wrongdoing" The judge said that the iniquity exception will apply only where there is a "particular nexus or relationship between the client and the wrongdoer" which is separate from the dealings between the client and the solicitor.

The judge went on to find that a client will be the "wrongdoer's tool" where, as a question of fact and degree, the iniquity takes the lawyer/client relationship outside the ordinary scope of professional employment. On the facts of this case, privilege was not lost because AF's wrongdoing was "parasitic" on the existing lawyer/client relationship, which was created and continued for a normal and legitimate purpose. AF had not used the drivers or their insurers as its tool.

Separately, the defendant solicitors sought disclosure and inspection of documents in the files of solicitors who were instructed to bring claims in the name of the claimant's clients (ie the innocent drivers). The judge found that the claimant and its client (the innocent driver) had a common interest: "[The claimant] and its client would clearly have a common interest in litigation against the defendant driver, and the doctrine has become less restrictive as to the interest that will attract it than when it was first recognised. However, I cannot accept either that, at least in the circumstances of this case, the privilege can be waived by one of the privilege holders alone or that [the claimant] is to be regarded as the primary privilege holder or that (therefore or otherwise) it has the power or authority to waive the common interest privilege". Reference was made to Australian caselaw where one privilege holder can waive common interest privilege if "fairness" so requires, and to textbook commentary which suggests that one of the privilege holders can waive privilege. Although the judge said that it might be possible to infer in a common interest privilege case that one of the parties had waived privilege in some cases, the documents between the claimant and the client in this case did not allow for such an inference to be drawn.

The judge found that although the agreement between the claimant and its clients permitted the claimant to receive privileged information and documents from the client's solicitors, that did not entitle the claimant to allow inspection: the client had not agreed to waive privilege altogether in the disclosed information and documents.

COMMENT: The judge's comment about the possibility of one party waiving joint or common interest privilege in some cases (although such a situation was said to arise more readily in common interest cases), might be contrasted with that of the judge's comment in the earlier decision of Winterthur v AG that for common interest privilege to be waived both parties must agree to the waiver (although in that case, a contractual right of access to documents overrode the privilege). However, the judge here distinguished that case on the basis that here there was no dispute here between the parties which were entitled to common interest privilege.