English High Court holds that a legal professional’s sharp acts can’t be shielded from damages under the ‘iniquity exception’

BVWire–UKIssue #20-1
November 3, 2020

A family dispute regarding the value of control has occupied the courts for eight years, but one portion of it has achieved resolution in Barrowfen Properties v Girish Dahyanhai Patel & Ors.

In this case, the question came down to whether there was a ‘strong prima facie case’ that a director had breached at least one of their statutory duties. The director in question claimed legal professional privilege, so the claimants had to prove to the English High Court that the ‘iniquity exception’ to privilege was triggered. The court observed that this exception engages if either: (a) those allegations involve fraud, dishonesty, bad faith, or sharp practice; or (b) the director consciously or deliberately preferred their own interests over the interests of the company and did so ‘under a cloak of secrecy.’

Sadly, the business valuation issues in this contentious saga took backseat (and key documents regarding the valuation of the assets in question as well as other facts were not disclosed) despite the fact that the alleged sharp acts included:

  • Making improper amendments to the register of members—and then fraudulently voting for falsely excluded members;
  • Forging resignation letters for fellow directors;
  • Creating schemes to force the claimant into administration so that other defendants could buy real property at a discount; and
  • Other ‘alleged breaches of fiduciary duties and common law duty of care.’

Mr. Leech QC (sitting as a judge of the Chancery Division) granted the claimant’s application after thankfully determining that the allegations met the relatively low legal test of ‘fraud, dishonesty, bad faith or sharp practice’ as defined by previous cases.

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