The iniquity exception to legal privilege

The decision in Foundation Stimm v King & Spalding International LLP & Anor [2025] EWHC 1067 (Ch) is a rare example of the courts determining that the iniquity exception to legal professional privilege applied. The High Court held that certain categories of documents between a law firm and its client were not protected by legal privilege, and the judgment sets out useful guidance on when the iniquity exception will negate a claim of privilege.

Legal background

The iniquity exception provides that legal professional privilege does not apply to documents or communications which come into existence as part of, or in furtherance of, a crime, fraud or other serious wrongdoing. The exception extends to underhand conduct which is in breach of a duty of good faith or contrary to public policy or the interests of justice.

Where a party to litigation withholds disclosure of documents on the grounds of privilege, another party to the proceedings may make an application to challenge this if it considers that the iniquity exception applies. In this case, the challenge was brought under Paragraph 14.2 of Practice Direction 57AD which generally governs disclosure in the Business and Property Courts.

In the recent, significant case of Al Sadeq v Dechert LLP [2024] EWCA Civ 28, the Court clarified that a prima facie case of iniquitous conduct can suffice for the exception to apply. See our update on that decision here.

Facts

The dispute arose in relation to the sale and purchase of a hotel in Knightsbridge. Mr Trimmatis (who was not a party to the proceedings) held an undisclosed interest in both sides of the transaction. Following the sale of the hotel, Mr Trimmatis was declared bankrupt and a warrant was issued for his arrest in England and Wales. The Claimant (Foundation Stimm) sued to recover funds that Mr Trimmatis had allegedly misappropriated during the transaction.

The Claimant alleged that the Defendants, being the law firm instructed by Mr Trimmatis and one of its former partners, either colluded with Mr Trimmatis or were aware of his misconduct. The Claimant became aware of potentially relevant documents during the course of Mr Trimmatis’s bankruptcy proceedings. The Defendants refused to produce these relevant documents to the Claimant on the grounds that they were protected by privilege.

The Claimant subsequently made an application to challenge the Defendants’ claims that privilege applied to the documents on the basis of six alleged potential grounds (or “strands”) of iniquity:

1. concealment of material interests: that Mr Trimmatis’ had concealed from mortgagees his interest in both the buyer and seller entities.
2. provision of forged documents: that Mr Trimmatis had used forged and backdated documents to mislead a third-party investor into funding the transaction.
3. fraud committed on the Claimant: that Mr Trimmatis had committed fraud against it by (a) forging documents; (b) creating fictitious loan arrangements; and (c) misappropriating deposit monies provided by the Claimant.
4. breach of fiduciary duty: that Mr Trimmatis committed fraud towards a funding entity involved in the transaction and in turn a breached a fiduciary duty.
5. misleading regulatory authorities: that false representations had been made to HMRC in connection with the transaction.
6. obstruction of justice: that there had been conduct intended to frustrate or mislead judicial or investigatory processes.

Decision

The Court found in favour of the Claimant and determined that three of the six alleged strands of iniquity were substantiated:

1. Concealment of material interests: the Court (relying on communications and transaction documents) found it more likely than not that Mr Trimmatis had dishonestly concealed his interest in both the buyer and seller entities and this concealment was material because it misled mortgagees into believing the transaction was at arm’s length.
2. Provision of forged documents: the Court found that a set of documents provided to a third-party investor was more likely than not inauthentic and created to mislead the investor (including shareholder agreements and other corporate records intended to persuade them to invest).
3. Misappropriation of client funds: it was held more likely than not that Mr Trimmatis induced the Claimant to provide a deposit based on misleading and forged documentation, and that the funds were subsequently misappropriated.

The Judge was careful to make clear that the law firm had not itself acted dishonestly nor was it complicit in the fraud, focusing instead on whether the documents were created in the context of wrongdoing by Mr Trimmatis.

The Judge held that these acts constituted abuse of the lawyer-client relationship, and therefore privilege did not arise in relation to the documents connected to these iniquities. However, significantly, he emphasised that the iniquity exception did not override privilege in all the documents relating to the sale on a blanket basis. Only documents directly connected to the three iniquities should be disclosed. The Judge explained that:

“The starting point is that legal advice privilege is inviolate. It is strictly only when the necessary conditions engaging the iniquity principle are satisfied that privilege does not arise. Those conditions cannot be circumvented by saying that the effect of one iniquity should be extended to all other aspects of a "transaction"”.

The Court ordered the Defendants to review, examine and disclose any documents related to the relevant established iniquities.

The decision, along with Al Sadeq v Dechert LLP, demonstrates that the courts are willing to scrutinise claims of privilege in commercial litigation and are willing to deny a claim of privilege where there is credible evidence of wrongdoing.

Key takeaways

1. Legal professional privilege is absolute – however it may not arise where there is a prima facie case of iniquity.
2. Trend towards greater judicial scrutiny of privilege – the courts appear increasingly willing to intervene and to scrutinise privilege claims (as shown both in this decision and Al Sadeq).
3. The courts will assess each alleged iniquity individually – and a successful disclosure order may require a party to undertake a document-by-document review to identify which documents fall within the scope of each established category of iniquity.

With thanks to Max Sharp for his assistance in preparing this post.