The Panama Papers, privilege and financial settlements

Divorce|April 11th 2016

Prominent family lawyers have suggested – for example in the Law Society Gazette – that the Panama Papers might be used to show fraud. The Panama Papers, as will be  recalled, are those leaked documents from a firm of lawyers in Panama showing a variety of their rich clients’ financial dealings. And where the fraud shows that a former spouse (let’s call him Edgar), has given false information to the court then the other spouse (say a wife, Cara) could apply to set aside any order made to resolve a couple’s financial affairs. (The Supreme Court recently considered the fraud question, generally, in Sharland v Sharland).

So where does this leave Cara’s lawyer, let’s call her Lauren, if Cara comes to her office with a batch of Panama papers? The Court of Appeal was critical of family lawyers who tried to make use of private papers in a matrimonial finance case some six years ago, so most of us will be wary.

All papers handed to a lawyer (such as the Panama Papers) will be confidential. Most, in addition, will be covered by legal professional privilege (LPP). LPP is created by the common law, and enables a person to consult a lawyer, and to know that nothing which is discussed can be passed on, even in court. The main exceptions to this are when the client dispenses with the privacy (‘waives privilege’), or when an Act of Parliament overrides ‘legal privilege’. 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 (the ‘iniquity exemption’).

Meanwhile, if Edgar’s information had been held by an accountant, a banker or an investment adviser, it would still be confidential, with a clear public interest in it remaining private. That said, the public interest in confidentiality (which is a lesser right than LPP) may be overridden by a superior interest, such as the right of another concerned person to a fair trial. In those instances LPP could not apply.

So if Cara brings in documents which Lauren knows have been ‘leaked’ from Panamanian lawyers, what is the lawyer to do? C thinks the documents show that Edgar has much more money than he admitted to in court. She wants to set aside the court order which Lauren and she obtained in good faith. She says: the order was based on a fraud; but can she rely on stolen documents to prove this?

Let us assume that in the Panamanian firm’s offices, LPP is much the same as it is in English common law; and that an English judge, if confronted with documents which would be covered by LPP in a common law court, would be unwilling to admit them as evidence.

Panama papers and the ‘iniquity exemption’

But what happens if the original lawyer’s advice – whether the lawyer is aware of it or not – is part of the crime (i.e. the advice of Edgar’s lawyer, in the case of Panama papers)? Are the documents or other information arising from the advice still covered by LPP? They are not, because the law says LPP did not arise in the first place. As the court said in 1884, when this aspect of the common law was laid down: if there is a criminal intent underlying the advice, then ‘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’. Therefore there is no privilege. (This is not to prevent alleged criminals instructing their lawyers; for the crime is not part of the advice, it is the subject of the advice).

First, lawyer and client must be clear as to whether the documents are covered by LPP. If so, that is an end of the matter. Lauren is likely to tell Cara that she can consider them no further. If they are not covered by LPP, but are only confidential, it is likely that the confidentiality can be overridden – for example, in the interests of justice.

If LPP does not arise then the following questions crop up:

  • If it is clear that the documents show (say) tax evasion or money-laundering, then the iniquity exemption applies and the most the documents can be said to be are confidential. No LPP arises.
  • If the lawyers were, in fact, acting as investment advisers or agents; and the advice they gave was limited to such advice (ie there was no legal advice), it may be arguable that no privilege arose. Investment advice is not acting in a ‘relevant legal context’.
  • Lauren is entitled to wonder whether, if the iniquity were proved, then are Cara’s actions 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? This needs further research.

If LPP applies to Edgar’s documents, Cara cannot use them. If LPP does not apply, there is still confidentiality. That may be easily overridden. There remains the question: can Cara and her advisers rely on documents which were taken illegally in the first place from the Panamanian lawyers? Does the fraud of the person who leaked the documents, even though they reveal a fraud, exonerate Cara and enable her to use the information in fresh English court proceedings?

The views expressed in this article are those of David Burrows and may not necessarily be shared by any of the other contributors to this blog.

Author: David Burrows

David is a solicitor advocate (higher courts, civil) who specialises in family law. He is a founder contributor to Family Court Practice (Jordans, the ‘Red Book’), and chaired SFLA (Resolution) National Committee in 2003. He writes extensively in for various publications, including Family Law and New Law Journal.

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