Panama papers: take legal professional privilege and a little iniquity…

Posted on 12th Apr 2016 in Legal Profession, Points of Law

Guest post by David Burrows


Confidentiality, privilege and the Panama papers

The leak of information from a firm of Panama lawyers – the Panama papers – raises a variety of questions for English lawyers, notably in the areas of confidentiality and of legal professional privilege (LPP). Papers held by a lawyer are confidential – at least they are in English law; and, mostly, if they form the basis of advice by a lawyer they are both confidential and covered by LPP.

LPP means that the documents are private, without further question. This is because the common law says that a person must be able to consult a lawyer, entirely secure that nothing can be passed on even in court, unless an Act of Parliament says so. However, if documents enable a lawyer – whether deliberately or innocently – to further a client’s crime, or other ‘iniquitous’ activity, they may be regarded as not ever having been covered by LPP.

So what questions does a lawyer ask if confronted by a client who wishes to take proceedings based on documents which are known to have been leaked (a journalistic word for stolen)? It has been said, for example, by one or two prominent family lawyers, that a client who finds out from particular Panama papers that their former spouse has assets greatly in excess of what a court was told following the couples’ divorce, then s/he may be able to cry ‘fraud’ and return to court for a replay of a couple’s financial proceedings (as in Sharland v Sharland [2015] UKSC 60; [2015] 3 WLR 1070; [2015] WLR(D) 408). If fraud is proved and there is appreciably more money in the matrimonial pot than everyone thought originally, then the original order will probably be set aside. But – and herein may lie the rub – the case for fraud, is based on another fraud (the stealing of the evidence on which it is based). Where does that leave a Sharland applicant then?

Privilege, privacy and openness: first principles

First principles first. Openness is essential to the common law (Scott v Scott [1913] UKHL 2; [1913] AC 417; European Convention 1950 Art 6(1); and see “To be heard in the dining hall…”: Scott 100 years on by David Burrows), as it is to most systems of justice. It is a crucial component of transparency in any legal, and most administrative, systems. All relevant information and documents must be available to the court and all parties before a decision is made on a case.

Privacy is the antithesis of openness. Yet for many individuals – famous and less so (but with eg extensive Facebook contacts) it can be essential to a peaceful life (eg Campbell v MGN Ltd [2004] UKHL 22, [2004] 2 AC 457; European Convention 1950 Art 8; and see Panama, privacy and power… by Paul Bernal). Confidentiality assumes that A’s privacy has been breached; but with A’s consent. That is to say, A’s private information has been passed by A to a confidant (B). If B is a lawyer, and the confidence relates to obtaining legal advice then the exchange will normally be covered by LPP; and A has the right to expect unconditionally that the confidence will remain closed: the privilege is absolute (R v Derby Magistrates’ Court exp B [1995] UKHL 18; [1996] 1 AC 487).

By contrast if A’s confidential information is passed on (say) to an accountant, a banker or a doctor there is a public interest in it remaining private (Attorney-General v Guardian Newspapers Ltd (No 2) [1988] UKHL 6; [1990] 1 AC 109 (Spycatcher case)); but that public interest in confidentiality (ie a lesser right than LPP) may be overridden by a superior interest, such as the right of another concerned person to a fair trial.

So if, as a lawyer, I am presented with documents which I know have been ‘leaked’ – perhaps stolen? – from (say) a Panamanian law firm which is said to have more than 40 offices around the world, what am I to do? My divorce client, Claire (C), who has given me these documents, believes that they show that her former husband, Donald (D), has much more money than he admitted to having when their financial affairs were settled three years before. She wants to set aside the court order which we obtained in good faith. As she sees it now the order was based on a fraud, namely on a false set of his financial facts (as in Sharland v Sharland). Can Claire rely on stolen documents to prove this?

I shall assume, for what follows, that tax avoidance is legitimate. Tax evasion and money-laundering, on the other hand, are criminal offences. I do not know what the law on privilege is in Panama; nor how Panamanian authorities regard tax evasion. For this article I shall assume (a) that there, and in most of the Panamanian firm’s offices, LPP is much the same as at common law in England; and (b) that an English judge, confronted with documents which would be covered by LPP in a common law court would be unwilling to admit them as evidence. Both these points may require to be tested in court in forthcoming months.

Further, privilege is not concerned with morality. The facts in the leading case on legal advice privilege (part of LPP) shows in what extreme circumstances a client can rely on privilege (see the Derby Magistrates’ case (above): B admitted murder to his solicitors, but later pleaded not guilty and was acquitted; E was then prosecuted; B refused to waive privilege; so his solicitors could not be compelled to release his file in E’s trial). LPP is in entirely non-judgmental terms. It applies equally to the good, the bad and the ugly. And most especially it will for the ‘bad’ (or allegedly ‘bad’), whether their crime be theft, murder, tax evasion, money-laundering or whatever.

The ‘iniquity’ exemption

But what happens if the lawyer’s advice – whether the lawyer is aware of it or not – is part of the crime? Are the documents or other information arising from the advice still covered by LPP? The short answer is: no, because the common law says that the privilege did not arise in the first place. The case which is the foundation for what is known as the ‘iniquity exemption’ to LPP (and it remains that foundation: see eg per Schiemann LJ in Barclays Bank plc v Eustice [1995] EWCA Civ 29; [1995] 1 WLR 1238 at 1249) is R v Cox and Railton (1884) 14 QBD 153. In that case Stephen J in the Court for Crown Cases Reserved held (at 168):

[For LPP to] apply there must be both professional confidence and professional employment, but if the client has a criminal object in view I n his communications with his solicitor one of these elements must necessarily be absent. The client must either conspire with his solicitor or deceive him. If his criminal object is avowed, the client does not consult his solicitor professionally, because it cannot be the solicitor’s business to further any criminal object.

So there may be a professional confidence; but if the law holds that there is not ‘professional employment’ LPP cannot enter into the discussion; and the lawyer will be compellable at trial (as was the unknowing solicitor in R v Cox and Railton).

Advice to the client whose documents are illegally obtained

So my first step for Claire will be to be clear as to whether the documents are covered by LPP. They are unquestionably confidential; but for this purpose I shall assume that if that is as far as their cloak goes, it can readily be overridden (eg in the interests of justice.) My preliminary advice would include the following:

  • If it is clear that the documents show tax evasion, then the Cox and Railton exemption will apply. There was no LPP. We need only overcome the confidentiality point (subject to ex turpi principles as below).
  • If the lawyers are, in fact, acting as investment advisers or agents; and the advice they gave was limited to such advice, it may be arguable that no privilege arose because as investment advice what they were doing was not in a ‘relevant legal context’ (Balabel v Air India [1988] Ch 317, CA per Taylor LJ, who also gave the main speech in Derby Magistrates’; R v Manchester Crown Court ex p Rogers [1999] 1 WLR 832, QBD Div Ct).
  • In my advice, I would wonder whether, if the iniquity were proved, then whether Claire would be tainted by the fact that the removal of the confidential documents was a crime; and that she could not, at one remove, benefit from it (ex turpi causa non oritur actio: from a dishonest cause an action cannot arise). Does one fraud upon another found an action? I would need to research that.
  • If it could be shown that the advice arose to try to help D evade a financial relief order (Matrimonial Causes Act 1973 s 37(2)) then it may well be that the iniquity exemption would apply. The documents would not be privileged (obiter dictum of Munby J in C v C (Privilege) [2006] EWHC 336 (Fam), [2008] 1 FLR 115 at para [44]).

In passing, it is worth noting that Munby J’s brief summary of the law on LPP and the iniquity exemption, in C v C (though it is a judgment which was 10 years old last February), is extremely helpful for civil (including family) and criminal lawyer alike.

If LPP applies, that is an end of the matter: Claire cannot use the documents. If LPP does not apply, there is still confidentiality. That may be easily overridden. But then there remains the question: can Claire and her advisers rely on documents which were themselves taken illegally? Does a fraud on a fraud exonerate the underlying illegality?



BurroughsDavid Burrows is a solicitor advocate, trainer and writer.

He writes a blog at DB Family Law