20 Dec 2018

Update on litigation privilege

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Introduction

2018 has seen a flurry of cases concerning the ambit of legal professional privilege, in particular the scope of litigation privilege, including the high profile Court of Appeal decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2018] EWCA Civ 2006 ("ENRC")1.  Despite that decision providing further guidance as to the scope of litigation privilege, the issue continues to be of concern to clients.  Two recent decisions, WH Holding Limited & Anor v E20 Stadium LLP [2018] EWCA Civ 2652; and Sotheby's v Mark Weiss Ltd & Ors [2018] EWHC 3179 (Comm), show that the scope of litigation privilege remains as contentious as ever.

This note examines the salient points arising from these decisions and the guidance which they provide to parties seeking to ensure that documents which they create fall within the scope of litigation privilege.

WH Holding Limited & Anor v E20 Stadium LLP

The Court of Appeal's decision in WH Holding & Anor v E20 Stadium LLP provides guidance both on the scope of litigation privilege, and in particular, what constitutes the conduct of litigation, and the proper approach to applications for inspection where a claim to privilege is challenged.

The scope of litigation privilege

The context of this appeal was a dispute concerning the use by WH Holding (West Ham Football Club) of the Olympic Stadium (owned by E20 Stadium LLP).  WH Holding challenged E20’s claim to privilege over six emails passing between E20 Board members, and between E20 Board members and stakeholders.  The emails comprised internal discussions of commercial settlement proposals concerning the underlying dispute.  E20 asserted that litigation privilege attached to the emails on the basis that the emails were composed with "the dominant purpose of discussing a commercial proposal for the settlement of the dispute…at a time when litigation was in reasonable contemplation"2.

At first instance, Norris J held that litigation privilege would protect the six emails in question that were prepared for the dominant purpose of formulating and proposing the settlement of litigation that was either in existence or in reasonable contemplation.  Applying the decision in ENRC, he held that litigation privilege extends to documents which are concerned with the settlement or avoidance of litigation even where the documents neither seek advice or information for the purposes of conducting litigation, nor reveal the nature of such advice or information3.

The Court of Appeal4 disagreed with Norris J's analysis, citing the scope of litigation privilege as set out in Three Rivers (No 6):

"…communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial (emphasis added)”5.

The Court of Appeal said that the issue to be determined was whether the scope of litigation privilege extends to documents which neither seek advice or information for the purpose of conducting litigation nor reveal the nature of that information.  Or, put more simply, whether litigation privilege covered documents prepared for the dominant purpose of "conducting litigation" in a broader sense. 

The Court of Appeal rejected E20's argument that, in light of ENRC, the phrase "conducting litigation" went beyond obtaining advice or evidence and encompassed discussions relating to a purely commercial settlement proposal.  ENRC confirmed that the conduct of litigation (for the purposes of litigation privilege) included its avoidance or compromise.

The Court of Appeal said that sub-paragraph (b) of the test in Three Rivers (No 6) was not an extension to the general proposition that litigation privilege covers communications for the purposes of obtaining information or advice.  To be protected by litigation privilege, a communication must be prepared for the dominant purpose of obtaining advice or evidence in relation to the conduct of litigation. It is not sufficient that a communication is for the dominant purpose of conducting litigation, in a broader sense.

The Court of Appeal did, however, accept that, even if the dominant purpose of a communication is not obtaining advice or information to conduct litigation, litigation privilege would attach to a communication in which advice or information obtained for that purpose "cannot be disentangled", or a document which would "otherwise reveal the nature of such advice or information".

Applications for inspection

The Court of Appeal also considered the appropriate test to be met when determining whether the Court should exercise its power to inspect documents where a claim to privilege was contested.

The Court of Appeal disagreed with the narrow formulation of the test set out in West London Pipeline and Storage v Total UK6.  Exercise of the power to inspect documents should not be restricted to cases in which the Court is "reasonably certain" that privilege has been wrongly asserted.  Instead, the Court has a wide discretion to inspect documents over which privilege is claimed to confirm whether a claim to privilege is properly made out.  However, that discretion should be exercised cautiously and in accordance with the overriding objective.

Sotheby's v Mark Weiss Ltd & Ors

In Sotheby's v Mark Weiss Ltd & Ors, a case in which this firm acted for the successful applicant, Mark Weiss Ltd, Teare J reconfirmed that litigation privilege can only be asserted over documents created for the dominant purpose of litigation which is pending, reasonably contemplated or existing.  Even where litigation is regarded as inevitable, if a document is created for multiple purposes (none of which is dominant) then an assertion of litigation privilege over that document will fail.

In this case, it fell to Teare J to decide whether or not the dominant purpose of communications between Sotheby's and an expert were made for the dominant purpose of the conduct of anticipated litigation with the applicant.

Teare J concluded that Sotheby's could not withhold inspection on the grounds of litigation privilege as the communications were made for two purposes of equal importance and, therefore, the "dominant purpose" test was not satisfied.

In summary, Sotheby's sold a painting by private treaty on behalf of Mark Weiss Ltd. The sale agreement contained a warranty such that, if the buyer provided written evidence raising doubts as to the authenticity of the painting within five years of the sale, Sotheby's would then have to determine whether or not to rescind the sale (subject to the satisfaction of some other conditions). As a result of rumours in the art market several years after the sale regarding the painting's authenticity, Sotheby's employed an expert on behalf of the buyer to conduct the tests and prepare an expert report (the "Report") which would satisfy the first condition of the warranty.

The expert formed a negative judgment regarding the authenticity of the painting. Thereafter (but prior to Sotheby's determining that the sale should be rescinded), Sotheby's considered that it was highly likely that there would be litigation with either the buyer or seller and asserted that all correspondence between it and the expert was in the context of the anticipated litigation. Specifically, Sotheby's argued that its communications with the expert were "to enable Sotheby's to understand the strengths and weaknesses of its position and to make the right legal and commercial decisions in anticipation of that potential litigation".

Teare J accepted both that litigation was contemplated at the time of the creation of the Report, and that it was highly likely that the Report would be used in the litigation and that the Report was required as a condition of the warranty before Sotheby's could seek to rescind the sale. Applying the Court of Appeal's statement of principle in ENRC that "[t]he exercise of determining dominant purpose in each case is a determination of fact, and that the court must take a realistic, indeed commercial, view of the facts."

Teare J determined that, as it was clear that the Report was created for two purposes, and these purposes were "of equal importance and relevance", Sotheby's was "unable…to establish that [the use of the Report in the contemplated litigation] was the dominant of the two purposes."

Additionally, Teare J rejected Sotheby's' submission that the case was analogous to ENRC, (in which the Court of Appeal found that the dominant purpose of documents created as part of an internal investigation was to avoid criminal prosecution and, as such, attracted litigation privilege), noting: "I do not read the ENRC case as deciding that whenever litigation is the "inevitable" consequence of taking a particular commercial decision, the dominant purpose of documents produced for the making of that decision is necessarily their use in the contemplated litigation".

Accordingly, the Court ordered disclosure of the correspondence between Sotheby's and the expert up to the date that Sotheby's took the decision to rescind the contract for sale.

Practical tips arising from these decisions

These decisions reflect a trend of increasing judicial scrutiny of claims to withhold disclosure on the basis of privilege, and the gradual narrowing of the circumstances in which such claims can reasonably be asserted7.  

The Court of Appeal's decision in WH Holding emphasises the need for parties to exercise caution when communicating in relation to commercial issues relating to the conduct of litigation, including, but not limited to, settlement proposals, to ensure that their communications fall within the ambit of litigation privilege in the narrow sense identified by the Court of Appeal; or are addressed in discussions with lawyers for the purpose of legal advice and so fall within the ambit of legal advice privilege.

Teare J's decision in Sotheby's emphasises that, even where litigation is in reasonable contemplation, parties must carefully consider the purpose (or purposes) for which communications with third parties8, including experts, are required before they engage in them, if their communications are to be protected by litigation privilege, and, where possible, avoid creating documents for mixed purposes.  Simply because a document says it is covered by litigation privilege is not determinative of the matter; the Court will look to the substance of the document and the actual purpose for which it was created (rather than that which is asserted).  For example, as Teare J held in Mark Weiss an expert report created for more than one purpose, including litigation, will not be protected by litigation privilege where it cannot be demonstrated that the litigation purpose was dominant.

Parties which may seek to assert a claim to litigation privilege in communications with third parties should also be mindful to ensure that they prepare documentary evidence of both the purpose for which those communications were prepared, and why the conduct of litigation was the dominant purpose, and the fact that litigation was in reasonable contemplation (and the reasons why this was the case) prior to them being made.

Finally, if in any doubt, given the complexity of the law in this area, parties should assume litigation privilege does not apply and seek, in the alternative, to protect documents and correspondence with legal advice privilege.

 



2 Paragraph 5.

3 "In both the civil and the criminal context, legal advice given so as to head off, avoid, or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting of defending such contemplate proceedings" ENRC, paragraph 102.

4 Sir Terence Etherton MR, Lewison and Asplin LJJ

5 Three Rivers (No 6) [2004] UKHL 48, paragraph 102.

6 [2008] 2 CLC 258.

7 This is likely to become an issue of greater importance following the commencement of the Disclosure Pilot in the Business and Property Courts in January 2019 which, amongst other things, obliges parties' legal representatives to confirm that any claims to privilege asserted are properly made (see paragraph 3.2(5) of the Practice Direction 51U: https://www.justice.gov.uk/courts/procedure-rules/civil/rules/practice-direction-51u-disclosure-pilot-for-the-business-and-property-courts).

8 N.b. a third party includes anyone who does not comprise within the narrow formulation of the client adopted in Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 5) [2003] QB 1556, namely, anyone authorised to seek and receive legal advice on that party's behalf. For example, employees who are not authorised to seek and receive legal advice would constitute third parties.

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