Yours unfaithfully: Are CFAs subject to an implied duty of good faith by the client?

10 August 2022

Confidential information: Dispute over use in proceedings

On 1 August 2022, the Court of Appeal handed down judgment in Candey Limited v Bosheh & Anor [2022] EWCA Civ 1103, which involved a dispute between a firm of solicitors and a former client over the settlement of his claim. The issues raised by the appeal were identified as follows:

  • Can a firm of solicitors bring proceedings against their former client on the basis that the client was in breach of a duty of good faith, by settling the underlying litigation on terms which meant that the solicitors had no express entitlement to their costs?
  • To what extent, if at all, when bringing such a claim, can the solicitors rely on privileged documents?
  • To what extent, if at all, can the solicitors rely on confidential documents, provided to them after the underlying proceedings have settled?

When granting permission to appeal, Lord Justice Males described the appeal as raising “novel issues”; this was said to be “something of an understatement” by Lord Justice Coulson, delivering the lead judgment.

Background

The appellant, Candey Ltd, a London-based law firm, had acted for the first respondent, Mr Bosheh, under a conditional fee agreement (CFA) in relation to a civil fraud claim brought in the Chancery Division against him and his son by another party, Sheikh Mohamed.

The Chancery action was settled shortly before trial on a ‘drop hands’ basis, with the effect that, under the terms of the CFA, Candey was not entitled to recover any of its costs. Candey subsequently brought a claim against Mr Bosheh, alleging that it had suffered a loss of more than £3m (reflecting the value of its work) due to him falsely representing that he would act in his own best interests only and in good faith, that the Chancery action against him would not succeed, and that certain central allegations against him in that action were unfounded.

Candey brought a further claim against the second respondent, Mr Salfiti, on the basis that he had procured Mr Bosheh’s breach of the retainer and/or was liable in unlawful conspiracy.

The claims against the respondents relied heavily on both privileged and confidential material. Mr Bosheh sought relief against the Candey’s use of the same and sought summary judgment and/or strike-out of the claims themselves.

The decision at first instance

It was common ground that privilege would not protect communications made in furtherance of a crime, fraud or similar conduct, the so-called ‘iniquity exception’. Candey argued that it could rely on the privileged material because of the iniquity exception.

Both parties relied on the decision of Popplewell J (as he then was) in JSC BTA Bank v Ablyazov [2014] EWHC 2788, the leading authority on the interplay between legal professional privilege and the iniquity exception. In that case, the court reviewed the authorities and concluded that the iniquity exception could not be invoked merely because a client has deceived their lawyer and thereby pursued a strategy of lies and perjury.

The test was whether the disputed communications are made in the ordinary course of the solicitor’s professional engagement or whether there has been an abuse of the solicitor-client relationship such that privilege over the communications is lost.

The High Court (Clare Ambrose sitting as a deputy High Court judge) held that Candey was not entitled to rely on Mr Bosheh’s privileged material in its particulars of claim, nor in its witness statements or exhibits, and granted an order striking out such material as inadmissible. She also held that Candey were not entitled to rely on Mr Bosheh’s bank statements but could rely on material disclosed by Mr Bosheh in the Chancery action.

The decision on appeal

In his lead judgment, with which Arnold and Phillips LJJ agreed, Coulson LJ held, in relation to the good faith issue: “Candey have not put forward any cogent basis for the implication of such a term. There is no authority that supports the proposition that, when retaining a solicitor to act for him or for her, the client owed that solicitor a duty of good faith. The absence of authority is perhaps unsurprising: it is a startling concept. Many would say that, if a duty of good faith was applicable at all, it would arise the other way round, and be owed by the solicitor to the client.”

He explained further: “The CFA was itself contrary to the implied duty. As Candey well knew, the allegations made by Sheikh Mohamed against the Boshehs involved fraud and dishonesty. The CFA assumed that it was quite possible that Sheikh Mohamed would win his claim because the CFA provided that, if that happened, Candey would recover nothing. Thus, the possible truth of the fraud allegations was inherent in the CFA itself. It would therefore be contrary to the CFA to suggest that the Boshehs somehow owed a duty of good faith to Candey.”

Addressing whether the judge was right to exclude the privileged material from consideration, Coulson LJ said: “The judge went carefully though the pleaded deception/misrepresentations and she concluded that they arose in the ordinary course of Candey’s professional engagement. That careful analysis shows which side of the line these alleged deceptions/misrepresentations fell. It has not been seriously challenged on this appeal.

“Nor in my view could it be: it is an unexceptionable analysis. It demonstrated that, even taking Candey’s case at its highest, the alleged false statements related back to the original fraud alleged by Sheikh Mohamed.”

In a concurring judgment, Arnold LJ added: “The fact that the information is known to the solicitor does not mean that it does not have the necessary quality of confidence if it is not in the public domain. If the information is not in the public domain, then the solicitor owes the client a duty to keep the information confidential.

“Secondly, the fact that the solicitor does not need to obtain disclosure of the documents does not mean that privilege has no role to play. On the contrary, the client can rely upon privilege to prevent the solicitor using the information in the documents without the client’s consent.”

The appeal was therefore dismissed.

Comment

The decision is clear that a client owes no implied duty of good faith to his/her solicitor by dint of entering into a CFA with them. Further, a party who has received another party’s confidential material in circumstances where it had no right to do so may be denied permission to retain and rely on it, even if the material would be disclosable in those proceedings.

It is an important reminder to firms that undertake a significant volume of work on a CFA-basis of the risks of clients agreeing a settlement that deprives them of their entitlement to costs. The terms of the retainer are crucial and should set out what the client’s liability for costs is in the event they agree a settlement contrary to advice and/or without the solicitors’ knowledge.

What is less clear, however, is when (and in what circumstances) a firm may be entitled to rely on privileged material in a claim against their former client. This decision confirms that a client does not necessarily, by making false statements to his/her solicitors or the court, lose the protection of legal advice privilege.

In order engage the iniquity exception, there must be an abuse of the solicitor/client relationship of such magnitude as to put the conduct outside the scope of the professional engagement. Definitive guidance as to what will or will not constitute such an abuse is not possible but this case illustrates that difficulties will inevitably arise when solicitors are aware from the outset that the client’s honesty and integrity is at issue.

Tom Collins is a barrister at 1 Chancery Lane

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10 Aug 2022

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