Internal board discussion of settlement proposals not protected by litigation privilege

A recent, rather unhelpful, Court of Appeal decision, (WH Holdings and Anor v E20 Stadium) adds to what was said by the Court of Appeal in ENRC in September 2018 [see here and here] with regard to documentation generated in attempts to avoid or compromise litigation. Whilst acknowledging that ENRC held that the "conduct of litigation" includes its avoidance or compromise, the court in WH Holdings held that that does not mean that internal company documentation produced for the dominant purpose of discussing a commercial proposal for the settlement of a dispute, will be protected by litigation privilege. To be privileged the communication must be for the purpose of obtaining advice as to the litigation, or obtaining evidence to be used in the litigation.

The court, in allowing WH's appeal against the judge's refusal to order disclosure of emails passing between E20's Board members and stakeholders, composed for the dominant purpose of discussing commercial proposal for settling the dispute with WH, said litigation privilege did not extend to "purely commercial discussions. In particular we do not consider that ENRC extended the scope of the documents covered by litigation privilege. The disputed documents in that case all fell within the recognised categories of advice or information going to the merits of the contemplated litigation. The only possible change… in ENRC was the confirmation that the conduct of litigation includes its avoidance or compromise...We would accept that a document in which advice or information obtained for the sole or dominant purpose of conducting litigation cannot be disentangled, or a document which would otherwise reveal the nature of such advice or [information] would itself be covered by litigation privilege."

Comment

The important, and very practical, impact of this decision is that it is not sufficient for a claim for litigation privilege that a communication is for the dominant purpose of conducting litigation, in a broad sense.  It must be specifically be for the dominant purpose of obtaining advice or evidence/information to be used in the litigation. This decision will affect how parties document internal discussions about ongoing disputes. It is likely also to have an impact on the scope of claims to litigation privilege in the course of giving disclosure.

WH Holding v E20 Stadium Ltd, 2018 Civ EWHC 2652

Communications with an art expert were for the dual purpose of making a commercial contractual decision, and for anticipated litigation, so were not protected by litigation privilege

Following allegations that a Frank Hals painting was a fake, S consulted an expert as to the painting's provenance. The expert's advice led to S rescinding its sale, and attempting to rescind its purchase, of the painting. S's seller sued.

S claimed litigation privilege in respect of its communications with the expert.

The burden of establishing that documents are subject to privilege is on the party claiming privilege. It is necessary to establish that litigation is reasonably contemplated, and that the communication was for the dominant purpose of obtaining advice or information or evidence in connection with the proceedings.

The judge was not persuaded, on the evidence adduced by S, that S's communications with the expert satisfied the test for litigation privilege. There were two purposes, he said, one commercial (whether to rescind the contract) and one legal (to be in a position to resist a reasonably anticipated claim from the Seller). Both were "of equal importance and relevance". He referred to the ENRC decision on litigation privilege a few weeks earlier: "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 provided for the making of that decision is necessarily their use in the contemplated litigation"

Comment

Dual purpose communications are a problem for parties seeking to claim litigation privilege.  S was clearly aware of the dangers when instructing Mr M: they asked that he mark all correspondence as "prepared in anticipation of litigation: Legally Privileged".  Nevertheless, the correspondence also acknowledged that the expert was being instructed to enable S to make commercial decisions. It is a long established principle that a label will not alone be determinative of privilege; the substance of the communication will be the overriding consideration. Each case will be fact sensitive. As the judge said, it is "unsafe to use the determination of dominant purpose in one case to assist in identifying the dominant purpose in another". There is therefore no substitute for analysing and setting out carefully in each case the reason for a particular communication when litigation is contemplated. Given that difficult commercial decisions will sometimes have to be taken with expert assistance, and, once taken, may be lead to litigation, parties to disputes should not assume that all their communications with experts will necessarily attract litigation privilege.  An alternative may be to structure communications in such a way that legal and commercial advice are provided in separate documents to seek to avoid privilege issues arising and/or privilege being lost in the whole document.

Sotheby's v Mark Weiss Ltd and Ors 2018 EWHC 3179 (Comm)  

Employee not the client under the Three Rivers No 5 test for legal advice privilege

In Glaxo v Sandoz Chief Master Marsh was not satisfied that Sandoz' (S) claim to privilege in certain emails had been made out. S had not shown that the information sought by an in house lawyer from two of S's employees had been sought on behalf of a particular defendant company or companies, where the lawyer was seeking information on behalf of the Sandoz "group". And just because the employees contacted by that lawyer had general authorization to request and receive legal advice, where it was relevant to their functions, that did not mean that that employee was "the client" in the narrow sense required by Three Rivers No 5, for the purposes of the particular matter in which the lawyer was instructed. Three Rivers No 5 required the employee to "be authorised to seek/obtain the legal advice that is the reason for the communications" (para 17).

When a group of companies is conducting litigation, it is important to keep in mind which employees form part of the "client group", and to address whether, if further individuals need to be involved, those individuals need to be expressly authorised to seek or receive legal advice on the particular matter, to preserve legal advice privilege, if for some reason a claim to litigation privilege is unlikely to succeed. In any event the conduct of information gathering should be structured to maintain litigation privilege where possible.

Documents disclosed by mistake – check the metadata

S had inadvertently included in its disclosure a privileged statement. It asked the court to order (under CPR 31.20) that all copies in the hands of Glaxo (G) be destroyed. That the document was privileged was accepted by G, but they argued that it was not obviously privileged, so as to give rise to the court's discretion to order its return or destruction. In his review of the evidence, of particular interest is the importance the Chief Master placed on the document's metadata which recorded that it was a "statement", pointing, he said, to its being privileged. Also important were its late date (also apparent from the metadata – it was not contemporaneous with the events that were the subject of the claim).

The Chief Master described the metadata as "easily accessible" and said that it "would have spoken of privilege in clear terms". S's mistake in providing inspection of the document would therefore have been obvious to a reasonable solicitor receiving it (even if it hadn't been obvious to the particular solicitor in this case). G should have taken immediate steps to notify S and to agree a process by which the document would be returned or deleted or both. The Chief Master ordered its deletion.

Comment

Although this decision contains no new law, there is useful guidance here for anyone adducing evidence to substantiate claims for legal professional privilege, as well as for those dealing with inadvertent disclosure of privileged documents.

Glaxo Wellcome UK Ltd & Another v Sandoz Ltd & Ors, [2018] EWHC 2679