Walking the tightrope - Illegally obtained evidence, privilege and the iniquity exception
In two recent cases, the British Virgin Islands Commercial Court had the opportunity to clarify the effect of section 125 of the Evidence Act 2006 (the Act).This provides that the Court is obliged to carry out a balancing act between the manner in which the evidence was obtained and the desirability of admitting it.
In Tall Trade Ltd v Capital WW Investment Limited, Justice Jack ruled that the hacking of someone’s computer or server is a serious impropriety and rendered the evidence inadmissible. Importantly, the Court highlighted that alternatively the evidence could have been obtained by lawful means.
In this case, the Respondent contested an application for the appointment of a liquidator on the basis that it was initiated for an improper purpose ie a conspiracy against it. To prove this conspiracy, the Respondent relied on Telegram text messages it had received from a telecommunications company. In assessing the evidence that was before it, the learned judge found that the text messages had been obtained illegally by hacking into the computer of the shareholders of Befree, a company in which the Respondent has an interest.
The Applicant sought to have this evidence excluded under section 125 of the Act.
In considering whether to exclude the illegally obtained evidence, the learned judge reasoned that there was no evidence as to where or when the computer or server was hacked, nor was there evidence of the relevant law of the country from which the hacking operation was presumably carried out, therefore it was not possible to say that obtaining the evidence had contravened the law pursuant to section 125(1)(a) of the Act.
Notwithstanding this, the learned judge ruled that the hacking of a computer or a server is “improper” within the other limb of section 125(1)(a) and “an impropriety” under section 125(1)(b) of the Act. However, to decide whether to exclude or admit the evidence the Court must carry out a balancing exercise to consider whether or not to exclude the evidence. To do this, the Court considered the criteria set out under section 125(3) of the Act. In addition, the Court assessed the illegally obtained evidence extensively to determine whether it had shown the conspiracy as alleged or was at least sufficient to meet the Sparkasse Bregenz test namely a substantial and bona fide dispute in the context of a liquidation claim.
Having assessed the evidence, the Court then ruled that the action of conspiracy was without merit since it had failed to meet the elements set out in the case of Taylor v Van Dutch Marine Holding Ltd. In addition, the Court also opined that mere discussions by shareholders about the division of shareholdings if the Respondent was forced to sell its shares is hardly evidence of an improper purpose and that “to determine whether the applications for the appointment of a liquidator have been brought for an improper purpose it is well established that the petitioners [for winding up] as [creditors]... are prima facie entitled ex debito justitiae to a winding up order, and it seems… to be impossible to displace that prima facie position without the very strongest proof that the petition is being improperly made use of for some ulterior motive.”
Having assessed all the circumstances, the learned judge then ruled that “hacking someone’s computer or server is a serious impropriety… and that everyone, including businessmen, has a reasonable expectation of privacy when using an encrypted service such as Telegram, therefore, rendering the evidence inadmissible was the only punishment available.” Importantly, the Court also reasoned that if the Respondent had brought proceedings against the individuals for the alleged conspiracy they would have been obliged to disclose the Telegram messages as part of their disclosure obligations which would have been highly relevant.
Importantly, it is also worthy to note that the Court highlighted that in exercising its discretion to admit illegally obtained evidence it must exercise such discretion with the view in mind as to what the legislator was envisaging and in particular with respect to the possibility of a serious miscarriage of justice occurring if illicitly obtained evidence was not admitted.
In Hu Lan v Sundale International and others, Justice Wallbank recently considered the scope and extent of the “iniquity exception” in refusing to uphold a claim that certain documents attracted litigation privilege.
The issue does not appear to have been addressed previously in the BVI. The case concerns the beneficial ownership of shares in a BVI company which, through various subsidiaries, owns valuable real estate in the PRC. The dispute is essentially between Hu Lan and her step-son David Golden and has been bitterly contested in a series of interlocutory applications. Two ex parte orders (an injunction and the appointment of receivers) obtained by the Claimant have been overturned by reason of her failure to make full and frank disclosure of material matters and her failure to present the application fairly.
Mr Golden is the registered owner of the shares and the Claimant relies upon a suite of documents, including a purported declaration of trust to found her claim. The authenticity of these documents has been in dispute from the outset. Mr Golden was given, by a whistleblower, a former employee of the Claimant’s husband who had assisted the Claimant with the litigation, numerous recordings of conversations which showed that the Claimant and others had altered the declaration of trust and had forged other documents relevant to the claim and related claims brought in the PRC. She also made available photographs of the altered documents being “sunbathed” in order to make them appear older.
On receipt of the recordings and the photographs Mr Golden sought to use the material in support of an application in the action. The Claimant, while denying in bare terms that she had acted fraudulently, declined at any point to explain her conduct or offer an explanation as to her actions. She instead applied to the Court seeking to prevent Mr Golden relying on the recordings and other documents on the basis that the same attracted litigation privilege.
Further she argued that as the materials had been obtained without the Claimant’s consent and in breach of a duty of confidence they were inadmissible by reason of section 125 of the Act on the basis that the evidence had been obtained “improperly or in contravention of the law” or “in consequence of an impropriety”.
Mr Golden relied upon the iniquity exception arguing that privilege did not apply to documents that had been brought into existence or altered by fraud. Further and for essentially the same reasons, he argued that the evidence was admissible under section 125 of the Act as the desirability of admitting the evidence outweighed the undesirability of admitting the improperly obtained evidence.
The Court rejected the argument put forward by the Claimant that for the iniquity exception to apply in a case (such as this) where the question of fraud is one of the issues in the action, Mr Golden had to establish a “very strong prima facie” of fraud. Having reviewed the English authorities, the judge found:
“Upon a strict analysis of the English authorities referred to above, the purist view is that the prima facie case simply has to be 'strong', not necessarily 'very strong'. The word 'very' does not add much to 'strong'. It simply underlines that the Court must be slow to revoke legal professional privilege other than in very exceptional circumstances. No additional gloss or explanation is needed than the requirement that an application must show that he comfortably exceeds the threshold of a prima facie case.”
In any event he found that the material raised a “very strong prima facie case of forgery and fraud..” and that Mr Golden had “comfortably” exceeded the prima facie threshold.
With regard to section 125 of the Act, the Court held that the evidence had considerable probative value and carrying out the balancing exercise it ought to be admitted concluding:
“There would be a significant risk of a grave injustice or a serious miscarriage of justice if it were to be excluded.”
In conclusion, unlike English law, the British Virgin Islands Evidence Act 2006 provides for an express mechanism as to the factors which a court is required to assess in order to decide whether illegally obtained evidence should be admitted. These factors were addressed extensively in the aforementioned cases which provides useful guidance about the various considerations the Court will make in determining whether to admit illegally obtained evidence. Notably, the cases provide that the Court will assess the evidence itself and will carry out a balancing exercise to determine its exclusion or inclusion. For comparative analysis purposes, the clear distinction between the two cases with respect to the admission and the exclusion of evidence must be noted. In Tall Trade Ltd v Capital WW Investment Limited the Court declined to admit the illegally obtained evidence on the basis that the evidence itself did not make out the case of conspiracy and could have been obtained by lawful means, whereas in Hu Lan v Sundale International and others the Court held that the documents raised a strong prima facie case of fraud and ought to be admitted considering that there would be a serious miscarriage of justice if it were excluded.