The LPP ‘iniquity exemption’ and financial provision proceedings

Iniquity and overriding privilege

One of the more difficult areas of practice is to identify, in the real world, what may and may not be ‘iniquity’ in relation to legal professional privilege (LPP). LPP makes material completely private as between a lawyer and his or her client (see eg R v Derby Magistrates’ Court exp B [1995] UKHL 18, [1996] 1 AC 487, [1996] 1 FLR 513) save where the client waives privilege, statute overrides it or the ‘iniquity exemption’ is held to apply. The definition of this remains Stephen J in R v Cox and Railton (1884) 14 QBD 153 at 171 where he said it is not part of a lawyer’s job to take part in crime. Bingham LJ referred to this as ‘iniquity’ (Ventouris v Mountain (The Italia Express (No 1)) [1991] 1 WLR 607, CA).

Examples are not extensive. In the famous Akhmedova litigation (Tatiana A got £453,000,000 as a lump sum: AAZ v BBZ & Ors [2016] EWHC 3234 (Fam); AAZ v BBZ and Others (Financial Remedies: Sharing Principle: Special Contribution) [2018] 1 FLR 153, (15 December 2016), Haddon Cave J; but has yet to see a penny of it; see eg Akhmedova v Akhmedov & Ors [2019] EWHC 2561 (Fam) (2 October 2019), Knowles J) the question of the exemption cropped up. In AAZ v BBZ & Ors [2016] EWHC 3361 (Fam) (20 December 2016), Haddon-Cave J said Arkhmedov’s solicitor must provide information he held about his valuable art collection, a decision which was upheld by the Court of Appeal (Kerman v Akhmedova [2018] EWCA Civ 307 (27 February 2018) – by which time the Arkhmedov name was out.

I wondered how the principle might apply in relation to the ‘Panama papers’ and where Michael Cohen was prosecuted in relation to Mr Trump’s ‘hush money’ On the Panama papers a few family lawyers wrote in around 2016 that perhaps they contained information of value to spouses (wives, say) who feared their former husbands had not provided them with full information as to their assets.

‘Sharp practice’ and variation of periodical payments

Suppose you are acting for wife number 2 (MM) who is applying for financial relief from her former husband (SS). He defends her claim in part by saying that he has a substantial unpaid instalment lump order which his first wife (LL) says he must pay. He says he has agreed to pay at £10,000 per month, which leaves him with no money to pay any periodical payments to MM; and his ability to pay capital has been reduced to a minimum by recent financial depredations he has suffered.

The Matrimonial Causes Act 1973 (MCA 1973), s 31 deals with variations of orders for financial relief. Section 31(2)(d) specifically refers to variation of orders for lump sums payable by instalments. Hamilton v Hamilton [2013] EWCA Civ 13, [2013] Fam 292, [2014] 1 FLR 55 and lump sum order variations does not apply here. It was open to SS to apply to vary; and till he does so the court does not know in correct terms, and terms fair to MM, what are the extent of the court’s dispositive powers in relation to her capital claims. SS would be entitled to apply to the court to vary his payments to KK. He seeks to portray his liability to LL as substantially reducing his ability to make payments to MM.

The question here is: can MM see detail of his legal advice not to apply to vary the LL order. If he is in as much financial difficulty as he says he is, and if LL’s financial position is so improved (as it appears to be) is SS simply refusing to apply under section 31(2)(d) to evade making any payments to MM?

The answer may be in Barclays Bank plc v Eustice [1995] 1 WLR 1238 the Court of Appeal was dealing with a case in which defendants sought to evade a charge on their property by transferring land to relatives at a time when they were insolvent. The bank wanted the transfers set aside as at an undervalue (Insolvency Act 1986, s 423); and applied for an order for disclosure of all documents containing or evidencing communications between them and their legal advisers relating to the impugned transactions. The Court of Appeal held that the purpose of the Eustices seeking the advice was sufficiently iniquitous for public policy to require that the communications between them and their legal advisers in relation to the setting up of the transactions should be discoverable.

MM argues that her position is analogous to that of the bank. It defies belief that but for her claim SS would not apply for a variation of LL’s order; but instead that he seeks to set it up as a reason for the court overriding her claim. Just as the bank were entitled to details of the Eustices legal advice, so too is ML entitled to disclosure (ie to know what documents there are: FPR 2010, r 21.1(1)) of:

  • All relevant material in relation to the making of the original order as between SS and LL.
  • All legal advice given to LL as to variation of the order now.
  • Any other material since the original order and to its variation was made.

The case Eustice and ‘iniquity’

In Eustice Scheiman LJ (with whom Dame Elizabeth Butler-Sloss and Aldous LJJ agreed) explained the exemption as follows (at 1249):

'… The present appeal is concerned essentially with the question whether the effecting of transactions at an undervalue for the purpose of prejudicing the interests of a creditor can be regarded as “iniquity” in this context.'

Applying the inequity exemption to the generality, as he saw it, of ‘sharp practice’ Schieman LJ concluded (at 1252):

'The evidence in the present case reveals a strong prima facie case of what the side-note to Insolvency Act 1986, s 423 refers to as “Transactions defrauding creditors.” The evidence which is sought to be inspected may help the plaintiffs overcome a detriment to which they ought not to have been exposed and to which they were exposed by the action of the defendants. [Counsel for the defendants], when asked to identify the prejudice which inspection might cause to his client, could do no more than indicate that material might emerge which would indicate to the plaintiffs various weaknesses in the defendant's position. In those circumstances I do not consider that the public interest requires these communications to be kept secret. If the strong prima facie case turns out to be correct, then the defendants have deliberately indulged in something which I would categorise as sharp practice.'

Is SS responsible for ‘sharp practice’ in the example above? MM’s answer is, yes. To use an order which could be varied, which could then give her a crack of the whip equal to that of LL may sharp practice, almost dishonest says MM. It may come within the ‘iniquity exemption’.

MM says, therefore, that disclosure should be ordered of the documents listed above from her former husband so that the court can assess the basis on which he is failing to ease the financial burden on him of the order in favour of his first wife.

David Burrows

Written by David Burrows

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