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Court of Appeal clarifies application of legal professional privilege in financial remedies case

Solicitor’s appeal against order to attend court to give evidence dismissed

The Court of Appeal has dismissed the appeal of a solicitor against an order requiring him to attend court to give evidence in financial remedy proceedings involving 'enormous wealth'. For the judgment in Kerman v Akhmedova [2018] EWCA CIV 307, click here.

The original judgment by Haddon Cave J was reported as Z v Z and others (Legal Professional Privilege: Fraud Exemption) [2016] EWHC 3349 (Fam), and came within a 'big money' case that concluded in December 2016. The proceedings were brought by the applicant wife ("W") against three respondents: the husband ("H"), Woodblade Limited and Cotor Investment SA ("Cotor").

The judge made findings against H of deliberate obfuscatory conduct, and set aside a pivotal disposition made in March 2015 under s.37 Matrimonial Causes Act 1973, having found it to be part of a wider pattern of conduct by H designed to put his assets out of the reach of W. The judge found that the 'bulk of the enormous wealth' in the case was held by the third respondent: Cotor (a Panamanian company). Cotor's assets at trial were valued at $890 million, and included a modern art collection valued at $112 million, and a portfolio of cash funds and investments at UBS in Switzerland. Haddon-Cave J found Cotor to be H's nominee, holding all of its assets for H on a bare trust. He quantified W's award at the sum of £453,576,152, to be effected by her retention of her own assets worth c.£10 million, the transfer to her of the contents of an English property (just under £2.5 million), an Aston Martin (£350,000), the modern art collection held by Cotor (£90,581,865), and a balancing lump sum from H of £350 million. Cotor was made jointly and severally liable to pay the lump sum.

On the last day of the final hearing (5 December), W was given permission to issue a witness summons to compel Mr Kerman (H's personal solicitor, albeit no longer on record in the financial remedy proceedings) to attend court on 15 December to give evidence. The summons contained an 'anti-tipping-off' order, which prohibited Mr Kerman from directly or indirectly informing any of the respondents of the fact and ambit of the summons. Mr Kerman attended court on 15 December with counsel, and was cross examined by W's counsel. During the course of that hearing, Mr Kerman's counsel (1) twice objected to lines of questioning on the grounds of an invasion of legal professional privilege ("LPP") (2) applied to set aside the witness summons under FPR r2.4, and (3) upon the judge's rejection of both of his objections to questioning, made two respective applications for permission to appeal and a stay of the decision to permit further questioning. All of these were refused.

Mr Kerman appealed from Haddon-Cave J's order, and raised four grounds of appeal. The first ground was centred on the LPP issue, and the remaining grounds related to the process by which Mr Kerman was brought before the court and the propriety of the 'gagging/anti-tipping-off' orders. The Court took pains to note that the outcome of the financial remedies proceedings was not the subject of this appeal.

The appeal was dismissed, with Sir James Munby P delivering the leading judgment, and Lewison LJ and King LJ assenting.

With regard to LPP, the Court reviewed the authorities at paragraphs 39-41, and summarised the basic principles:

The appellant challenged Haddon-Cave J's findings that there was no LPP because (1) Mr Kerman had been acting qua man of business rather than qua legal advisor, and (2) in any event, the fraud exception applied.

The Court of Appeal bypassed these complaints and determined that there was a third issue that was 'determinative of the issue in relation to privilege'. The transcript showed that the cross-examination of Mr Kerman was actually confined to two factual topics. He was not asked about 'his dealings with his clients, his instructions from them, or his communications with them, let alone any advice he may have given them' (paragraph 46). Before Haddon-Cave J, W's counsel had correctly pointed out that had these questions been asked of H, he would not have been able to object to answering on the basis of LPP: 'why then, should Mr Kerman be able to rely on a privilege which would not be available to his client?' (paragraph 47).

The Court went on to emphasise that communications between a solicitor and a third party are not privileged, and referred to the most recent summary of the same in Director of the Serious Fraud Office v Eurasian Natural Resources Corpn Ltd [2017] EWHC 1017 (QB). The appellant had 'no effective answer' to this point, on which basis the appeal on the LPP issue failed.

All other grounds of appeal were dismissed save that the Court held that the anti-tipping-off order should have been time-limited and should not have been expressed as enduring "until further order". However, this defect did not entitle the appellant to any relief.

The appeal was dismissed accordingly.

For the judgment, prefaced by a detailed summary by Joseph Rainer of Queen Elizabeth Building (of which this is an abbreviated version), click here.