Privilege claimed, privilege protected? English court orders release of "privileged" documents adopting "fraud exception"

In Lakatamia Shipping Company Limited v Nobu Su [2022] EWHC 3115 (Comm), Mr. Justice Jacobs ordered the release of certain categories of documents belonging to the defendant Mr Su over which the defendant claimed legal professional privilege, as the documents were used in pursuit of fraudulent or iniquitous objectives, including the abuse of the "normal relationship between solicitor and client", and so fell within the "fraud" or "iniquity" exception.

This "crime-fraud exception" is no stranger to Hong Kong, where parties and regulators alike have attempted to invoke the exception to defeat claims of privilege under the same principles derived from English common law. The decision is a reminder that whilst exceptions to privilege are not novel concepts, legal representatives and their clients should have them front of mind to ensure that privilege claimed will be privilege protected.

Inadequate disclosure

Lakatamia Shipping Company Limited (Lakatamia) applied for an order that two categories of documents belonging to Su be released, notwithstanding Su's contention that the documents were protected by legal professional privilege, due to Su's "manifest iniquity".

The categories of documents sought were:

• Correspondence between Su and his English solicitors and direct access counsel in the period from January to March 2019.
• Correspondence between Su and his lawyer in Monaco. Lakatamia argued that Su had dissipated the proceeds of sale of two very valuable properties in Monaco which had been held on Su's behalf through the Monacan lawyer's client account, and that the Monacan lawyer and his firm could hold documents that revealed information about Su's assets.

The proceedings up to that point had been lengthy and included a worldwide freezing order made by Mr. Justice Blair in 2011 (the Blair Freezing Order), the enforcement of a 2014 judgment of Mr. Justice Cooke and unsatisfied costs orders pursuant to which Su owed Lakatamia a sum in excess of US$60 million.

Passport order

In January 2018, Mr. Justice Popplewell (as he then was), made a "passport order" against Su, pursuant to which if Su were to come into the jurisdiction of the United Kingdom , he was to surrender his passport and remain within the jurisdiction pending a cross-examination as to his assets. The order also required Su to make disclosures as to his worldwide assets.

In January 2019, Su entered the jurisdiction and was served with the order. Su attempted to leave the jurisdiction, but was arrested and brought before the court, and was required to make daily reports to a police station pending the cross-examination.

By this stage of the proceedings, Su had engaged a firm of English solicitors, who confirmed to Lakatamia that their fees were paid by a company which Su claimed was owned by his friend, and that the funds was not caught by the Blair Freezing Order. This was found to be untrue in cross-examination, with the real source of the funds being Madam Su, Su's mother, to whom Su had also passed the sale proceeds of the Monaco properties.

Lakatamia immediately applied for and obtained a freezing order against Madam Su. In 2021, Mr. Justice Bryan found that Madam Su and various other corporate defendants had conspired with Su to dissipate the net proceeds of sale of the Monaco properties in breach of the Blair Freezing Order.

Su was found in contempt of court for failure to comply with disclosure orders and for attempting to flee the jurisdiction, in multiple committals.

Search order

In June 2020, Mr. Justice Baker made a search order against Su, pursuant to which documents which had been reviewed would be given to Lakatamia unless they were determined to be clearly irrelevant to Su's assets or which were, or might be, privileged or incriminating.

Su breached the search order by preventing the supervising solicitor appointed under the order immediate access to his premises and appearing to have deleted emails from his electronic device during the search. The search order was continued by Mr. Justice Foxton, and the release of documents to Lakatamia was authorised on a rolling basis, subject to the filters referred to above.

At the third committal hearing, Su admitted to 20 specimen instances of contempt, including his breach of the search order and expending a substantial sum on a personal matter during the course of the first committal motion.

Lakatamia's application

Lakatamia argued that notwithstanding that the documents sought related to correspondence between a client and his lawyers and on the face of it, would be protected under legal professional privilege, such communications would not attract privilege if the client had consulted the solicitor in furtherance of a criminal purpose, regardless of whether the solicitor did or did not knowingly assist in the furtherance of that purpose.

Additionally, as stated by Popplewell J in JSC BTA Bank v Ablyazov [2014] EWHC 2788 (Comm) (in which Hogan Lovells acted for the claimant and successfully obtained orders for disclosure of documents over which privilege was claimed by the defendant on the basis that the iniquity exception was found to apply), this exception extended to "fraud or other equivalent underhand conduct which is in breach of a duty of good faith or contrary to public policy or the interests of justice".

The decision

In granting the disclosure order, Jacobs J stated that Su's actions constituted, "one of the most serious campaigns of contempt in the English courts", pursued by Su over a lengthy period of time for the purposes of avoiding the disclosure of assets and frustrating the enforcement of court orders.

The court found the correspondence between Su and his English lawyers fell "squarely within the iniquity exception". Su had engaged with his English solicitors and his direct access counsel, concealing his assets while purporting to comply with the "rolling disclosure" obligations which had been imposed on him. Su had also lied to his lawyers and to the court about the source of funds used to pay his legal fees.

There was "ample evidence" that the English solicitors had been instructed not for the purpose of complying with the court orders, but rather to give a false impression of compliance. His lawyers had been "used as an instrument to perpetuate the deception".

Jacobs J accepted Lakatamia's contention that there were "close parallels" between the offending conduct and that in JSC BTA Bank.

In JSC BTA Bank, Popplewell J held that there was no privilege in communications between the defendant and his lawyers concerning his assets, as his lawyers had been engaged from the start to further his "strategy of concealment, forgery and deceit in relation to the assets", and to breach court orders. Popplewell J emphasised that there can be no confidentiality nor privilege arising from communications between lawyer and client in such circumstances.

The court in Lakatamia held that it was appropriate to grant similar relief for the same reasons relied on in JSC BTA Bank in relation to the first category of documents sought by Lakatamia. Given that there was "no real basis for any distinction" between the first and second categories of documents sought by Lakatamia, the court ordered the disclosure of both categories of documents, insofar as they pertained to Su's assets. 

An "impenetrable shield"

Legal professional privilege is often thought to be an impenetrable shield protecting communications between lawyer and client, and little consideration is given to the exceptions that may apply. The reality that privilege is not an unqualified right ought to be borne in mind by clients and lawyers alike, from the minute the client contemplates obtaining legal representation.

The scope of privilege is by no means narrow, but once the exceptions to it are found to be applicable, the courts may order the floodgates to be opened and for information over which privilege is claimed to be disclosed, even if the information puts the client under a less than desirable, and even incriminating light. This is consistent with the approach under Hong Kong law that any document related to the furtherance of a crime or fraud, not just those directly related to it, may fall within the crime-fraud exception.

The court in Lakatamia took a dim view of Su, who had not only attempted to evade disclosure orders made by the courts, but had engaged lawyers on separate occasions to further his criminal acts and to create a façade of compliance. The court's decision and reasoning in the case reinforce the sanctity of legal professional privilege and the grave consequences of abusing it, as seen in JSC BTA Bank and other previous decisions.

Whilst the defendants' level of deceit in Lakatamia and JSC BTA Bank was so serious and apparent that there was little doubt that the fraud or iniquity exception should apply, the threshold for such exception need not be so high. In Hong Kong, mirroring the English position, the threshold for invoking the crime-fraud exception is based only on a preliminary or prima facie case made out on the papers, i.e. that which appears to be the position at the time of consideration in the absence of further explanation.

Limits of privilege

The Lakatamia decision is a cautionary tale to lawyers and clients of the limits and exceptions to the safe harbour of privilege over their communications.

Even between a company and its in-house counsel, ordinarily privileged communications may be ordered to be disclosed on the basis of fraud or iniquity, causing conversations and correspondence in which less discretion was exercised to be subject to the scrutiny of the court and of the other side.

The consequences of the court ordering the disclosure of ordinarily privileged documents may be devastating to a client's case. Once released, such documents may be used to the client's detriment in the proceedings, and even as a springboard to commence further litigation (albeit that the court's permission is likely to be required to use the disclosed documents for the purposes of other proceedings).

Lawyers should take care to clearly demarcate the boundaries of privilege to clients at the onset of their relationship to ensure that the purpose of their engagement is and continues to be lawful. While providing advice with a criminal element, lawyers should avoid their advice being perceived, either directly or indirectly, as guidance on how to further a criminal offence or fraud.

Authored by Richard Lewis, Stephanie Tsui, Nigel Sharman, and Rachael Koc.