A post earlier this week looked at the issue of privilege and the third edition of the standard work on the topic.  It is worthwhile looking at the decision in Conegate Ltd v Revenue & Customs (CAPITAL GAINS TAX – purchase of shares) [2018] UKFTT 82 (TC) where the First Tier Tribunal Tax Chamber. It is an example of how privilege can be waived by referring to legal advice in a witness statement, something all litigators must be wary of.

“In the circumstances of this case, we consider that it would be appropriate for the Tribunal to draw an adverse inference from the Appellant’s failure to disclose documents containing legal advice over which we have determined privilege has been waived.” 


The Appellant appealed against a decision that it had not incurred a capital loss in a share transaction relating to a football club.  Preliminary issues arose in relation to legal professional privilege.


The first preliminary issue – legal professional privilege
7.              The Respondents’ skeleton argument drew attention to their submission that, through statements made in a witness statement, the Appellant had waived privilege in respect of a class of material which would otherwise be subject to legal professional privilege (on the basis that the documents concerned communications between a client and a legal advisor for the purpose of seeking legal advice).  The Appellant did not agree that privilege had been waived in respect of this material.  It appeared that there had been substantial discussion between the parties in relation to disclosure of that material in the period immediately prior to the hearing.
8.              We had anticipated that the Respondents would make an application for disclosure of that class of documents.  However, on the first day of the hearing it transpired that the Respondents’ took the view that if they made such an application then there would not be sufficient time remaining in the present listing for the substantive hearing to proceed without the substantial risk of the appeal being part-heard.  Therefore the Respondents’ position was that they would not make an application for disclosure but would instead submit that privilege had been waived and that the Tribunal should draw an adverse inference from the absence of the relevant documents.
9.              The Appellant’s view at the beginning of the hearing (and we note below the Appellant’s later submissions on this point) was that there had been no waiver of privilege, and that no adverse inference should be drawn in any event.  The Appellant apparently took the same view as the Respondents of the risk of the hearing being part heard, and so joined with the Respondents in submitting that there should be no preliminary hearing of the issue of whether privilege had been waived.
10.           We acceded to the joint request of the parties that the issue of whether there was a waiver of privilege and, if so, the consequences of that waiver, should be considered by us after the hearing as part of our determination of the substantive dispute.  We consider this issue below when setting out our approach to the evidence.
The second preliminary issue – Without Prejudice communications
11.           While we were not required to consider an application for disclosure at the beginning of the hearing, it was necessary for us to express an opinion as to whether a letter should be excluded from our bundles on the basis that it had been sent Without Prejudice.  The parties were agreed that we should approach this question without seeing the letter in question but after having heard a description of the document. 
12.           The document in question was a response sent from the Respondents to the Appellant.  The original letter from the Appellant had been marked “without prejudice” and contained settlement proposals.  The Respondents’ response to that letter – the document in dispute – was not marked “without prejudice” but, in responding to the Appellant’s offer, the Respondents stated: “on a strictly WP basis ….”.  We were told that the Respondents then went on to concede part of their case at that stage and to invite the Appellant to concede other arguments.
13.           Mr Kamal argued that, although, at that date, an enquiry was underway and the letter was sent as part of that enquiry, it was not clear that there was a dispute.  If there was no dispute between the parties at the time it was sent then it followed that the letter in question could not have been sent on a Without Prejudice basis.
14.           Mr Saoul noted that this point of difference between the parties had arisen only on 31 October 2016, and that ten days prior to the hearing it had been common ground that the letter was sent on a Without Prejudice basis.  Mr Saoul drew our attention to an email of 18 October 2016 where the Appellant’s solicitors had stated that certain documents, including the letter in question, “are without prejudice and add nothing to the case”.  Mr Saoul identified the policy behind the exclusion of Without Prejudice correspondence as encouraging settlement, and took us to Cutts v Head [1984] 1 Ch 290.  It was plain that this policy applied equally to pre-action correspondence where the parties knew that if there was no agreement then the matter would be litigated; this was why the Appellant’s original letter had been marked “Without Prejudice”.  Mr Saoul argued that the dispute between the parties here went back as far as 2012.
15.           The Respondents also referred us to Rochester Resources Limited v Lebedev [2014] EWHC 2185 (Comm) and Sampson v John Boddy Timber Limited (Court of Appeal, 11 May 1995, Official Transcripts 1990-1997).  It was submitted that the letter in question here was also inadmissible as simply not being relevant, as each of the parties was either right or wrong on the substantive points made, and concessions made in correspondence had no bearing.
16.           In reply, Mr Kamal argued that there was no dispute between the parties at the time that the Appellant’s letter was sent, and that the Respondents’ reply was the beginning of the dispute.  Mr Kamal could not explain why the Appellant’s letter had been marked “Without Prejudice” but submitted that did not mean that there was a dispute between the parties at the time.  Mr Kamal also noted that the letter in question was sent prior to the letter of 2 October 2015 which contained the formal decision appealed against in these proceedings.
Our conclusions on this issue
17.           We adjourned briefly to consider this issue.  When we reconvened we informed the parties of our conclusion that, on the description the parties had provided of the document, the Respondents’ letter was sent on a Without Prejudice basis.  We took the view that there was an issue between the parties by March 2015.  The Appellant’s letter was marked “Without Prejudice”, and we considered that that letter would not have been marked in that way if there had not been the thought in the sender’s mind, at that time, that the issue between the parties might lead to litigation.  A response to a Without Prejudice communication is also Without Prejudice.  Therefore we concluded that the letter in dispute was sent on a Without Prejudice basis and would not be admitted.
The substantive dispute and remaining first preliminary issue
18.           Having disposed of the second of the preliminary issues during the course of the hearing, we turn our attention to the outstanding first preliminary issue and the substantive dispute between the parties, namely whether the Appellant was entitled to claim a loss.
19.           As the preliminary issue may affect our approach to the evidence, and thus the facts we find, we consider first whether the Appellant did waive privilege.  If we conclude that there was a waiver we will consider what effect this has, before then setting out our approach to the evidence before us and our findings in respect of that evidence.  We will then consider the parties’ arguments in respect of the substantive dispute.
First preliminary issue – has there been a waiver of privilege?
20.           We bear in mind that the dispute between the parties concerns the effect of the transactions entered into by the Appellant, and that part of that dispute (the arguments concerning Section 16A TCGA 1992) focusses upon the Appellant’s main purposes in entering into those transactions.
21.           We understand (from Mr Kamal’s skeleton argument) that certain transaction documents, including emails to Mr Sullivan from the Appellant’s solicitors, had voluntarily been disclosed to the Respondents.  (Although Mr Kamal then submitted that privilege could not be waived in respect of part of the documentation only, we do not understand him to be arguing that the Appellant had waived privilege as a result of that voluntary disclosure.)  However, certain emails sent between Mr Sullivan and the Appellant’s solicitors in the period 5-10 May 2010 had not been disclosed.
22.           In his witness statement Mr Sullivan stated:
8.1  I am aware that HMRC have queried why I (via Conegate and Roldvale) went about contributing funds to WHH in this manner.  The categorical answer is that I wished to obtain a shareholding in the football club and inject further funding into the football club to improve its long-term financial viability, but I did not want to bail out CBH financially.  There was a grave risk that if I invested in WHH simply by acquiring CBH’s existing interest, only CBH would benefit financially.  I had no intention of that risk happening
8.2  Further, I did not wish for Conegate or Roldvale inadvertently to incur what may be termed as a “dry charge” to capital gains tax, as this would have reduced the funds available to Conegate and Roldvale to invest into WHH.  Initially in May 2010, I had wished to assign to WHH for nil or nominal consideration my option to acquire further shares in WHH having an aggregate exercise price of £4 million (i.e. £20,000 per share).  My intention was that WHH could then exercise the option and buyback the relevant shares for £4 million and issue new shares (in the same number as those shares just bought-back) at an aggregate subscription price of £8 million (i.e. £40,000 per share).  This would have net WHH £4 million, i.e. the £8 million new share subscription less the £4 million buy-back price, thereby achieving the aim of injecting further funds into WHH.
8.3  Messrs [MS and PT] were both corporate lawyers who had the principal conduct of the matter for me.  They advised me of a risk that my proposal could have inadvertently triggered a chargeable gain.  In essence, the risk was that the proposed share issue at £40,000 per share could be taken as evidence that the DS Entities’ option over WHH had meaningful value, given that the option exercise price was £20,000 per share.  So, if the option was assigned for nil or nominal consideration in circumstances where the disposal proceeds for chargeable gains purposes were deemed to be equal to market value, the DS entities could have effectively suffered a charge in respect of an amount they never received; that is, a “dry” tax charge.  Such a dry charge would have been an unjust boon to HMRC at the expense of WHH’s funding.  And on any objective analysis, such a charge would be wholly unnecessary in the scheme of re-financing WHH as described above.
8.4  I then considered whether the DS Entities could simply waive their option over 200 WHH shares, thereby permitting WHH to buy-back 200 shares directly from CBH for £4 million and fund that buy-back out of the proceeds of a fresh issue of shares for £8 million.  However, [MS] advised me that this was prohibited under the Companies Act, as the premium element on the buy-back of CBH shares needed to be funded out of distributable reserves, which WHH did not have.  In light of this company law restriction, the only feasible alternative was for WHH to buy-back shares at a nominal consideration (£1).  This was the reason on 24 May 2010 for the variation of rights attaching to certain of Conegate’s and GGIL’s ordinary shares in WHH (and re-naming as a separate class of deferred shares) and subsequent buy-back of those shares for £1.  It also facilitated the further injection of funds by way of share subscription into WHH on that date, and enabled shares to be held in WHH in the commercially agreed proportions set out [above].
23.           Mr Sullivan’s references to the advice received from MS and PT have resulted in the Respondents’ submission that the privilege which would ordinarily attach to communications between a legal advisor and a client for the purpose of obtaining legal advice had been waived by the Appellant in respect of the advice it received (through Mr Sullivan) from its legal advisors.  The Respondents submitted that there were clear references to, and reliance upon, the legal advice received in relation to the transactions, that this reliance was to advance the Appellant’s case, and that this was sufficient to constitute the Appellant’s waiver of privilege over certain documents which had been withheld, notwithstanding the lack of reference to a specific document or documents in Mr Sullivan’s witness statement.
24.           The Appellant strongly denied that privilege had been waived, submitting that there had been no reliance upon the contents of the legal advice to advance the Appellant’s case and thus no deployment.  Mr Kamal submitted that, far from the Appellant seeking to deploy material which would otherwise be privileged, it was in fact the Respondents who wished to rely upon the documents in question.
Our conclusion on this issue   
25.           Our starting point is the dictum of Mustill J. (as he then was) in Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corpn (No. 2) [1981] Comm LR 138 (at 139):
… where a person is deploying in court material which would otherwise be privileged, the opposite party and the court must have the opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question.  To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.
26.           The parties referred us to a number of authorities concerning what would constitute deployment or reliance.  The Respondents referred us to the following helpful passage in Mid-East Sales Ltd v United Engineering & Trading C. Ltd and another [2014] EWHC 892 (Comm), in which Hollander on Documentary Evidence was summarised, noting the distinction between references to the fact that legal advice had been given and reliance upon the content of that advice.  At paragraph 15 of his judgment, Males J. stated:
…The overriding principle is one of fairness, that if the content of legal advice is deployed or relied upon in order to advance a party’s case, then fairness may require that disclosure of that advice be made available so that the court can properly assess that assertion.
27.           After setting out the relevant statements, Males J. continued (at paragraphs 18 and 20):
It seems to me that those two statements, taken together, do cross the line from reference to deployment.  They make a case that the second defendant was acting on legal advice in responding to the claim form in the way that it did.  That can only be relevant because the second defendant seeks to rely on that as a factor going to the exercise of the court’s discretion.  I can see no other reason why the reference to acting on legal advice should have been included in the witness statement.  Now that the second defendant has invited the court to exercise its discretion on the basis that it was acting on legal advice, it may be highly relevant to know what that advice was. …
In my judgment, therefore, there has been a waiver of privilege in those two written communications and fairness does require that the claimants and the court should have the opportunity to see those communications so that the evidence about them can be fairly assessed. …
28.           We also found the comments of Elias J. in Brennan and others v. Sunderland City Council and others [2009] ICR 479, helpful in ascertaining whether there has been waiver.  At paragraph 67, the then President of the Employment Appeal Tribunal stated:
However, in our view, the answer to the question whether waiver has occurred or not depends upon considering together both what has been disclosed and the circumstances in which disclosure has occurred.  As to the latter, the authorities in England strongly support the view that a degree of reliance is required before waiver arises, but there may be issues as to the extent of the reliance.  Ultimately, there is the single composite question of whether, having regard to these considerations, fairness requires that the full advice be made available.  A court might, for example, find it difficult to say what side of the contents/effect line a particular disclosure falls, but the answer to whether there has been waiver may be easier to discern if the focus is on the question whether fairness requires full disclosure.
29.           Therefore, we approach the question of whether there has been sufficient reliance to constitute waiver as a composite question of achieving fairness between the parties.  Mr Sullivan has clearly referred to the fact of legal advice but he has not referred to specific documents.  Was there reliance on the advice to the extent that fairness requires the documents containing the legal advice be disclosed? 
30.           We take the view that, when Mr Sullivan was referring to the advice the Appellant received, he was referring to that advice in order to make the case that it was because of that advice that the Appellant had taken the steps it took (rather than taking other steps to achieve its objective of injecting funds into the football club) – Mr Sullivan described the steps taken as “the only feasible alternative”.  It seems to us that was sufficient reliance or deployment to constitute waiver, and that in the circumstances it would be unfair for the Appellant to assert that the legal advice it received led directly to the particular steps taken, without the Respondents having the opportunity to examine documents containing that advice in order to ascertain the position for themselves.
31.           We conclude that the balance of fairness is in favour of the Respondents, that there was deployment, and as a result privilege has been waived by the Appellant in respect of the legal advice it received in respect of the options available when identifying the manner in which funds could be injected into the football club. 
What is the consequence of privilege having been waived?
32.           Having concluded that privilege was waived, we consider the effect of that waiver by the Appellant.
33.           The Respondents submitted that, at a minimum, the Tribunal was entitled to draw adverse inferences from the Appellant’s refusal to disclose the relevant documents or to provide further information about them.  In their skeleton argument the Respondents had also argued that, if privilege had been waived, then they (and the Tribunal) were permitted to question the Appellant’s witness about the advice which had been given.  Above we set out the parties’ common stance at the beginning of the hearing that the question of whether privilege had been waived should not be determined as a preliminary issue.  This position meant that the Respondents did not press this second point before us.
34.           The Appellant submitted that no adverse inferences could be drawn from a refusal to waive privilege and that, even if we concluded that privilege had been waived, we should not draw an adverse inference from the Appellant’s failure to produce the relevant documents.  Mr Kamal subsequently submitted that if we were to decide that there had been a waiver of privilege, the Appellant would be willing to disclose the contested documents to the Respondents in order to prevent us drawing an adverse inference from the lack of disclosure.  However, this supplementary submission came just after the short adjournment on the second day, after the Appellant had concluded its case (and after the Respondents had opened their case by making their submissions on waiver).  We reminded Mr Kamal that neither party had sought to have the issue determined as a preliminary point, and so the appeal hearing had proceeded on the basis that the question of whether privilege had been waived would be determined as part of the substantive decision.  Given that agreed approach, we were concerned that there were a number of practical objections to the Appellant’s offer, not least that disclosure of material after our decision had been released would not allow the Respondents to put that material to Mr Sullivan (as Mr Sullivan had already been released as a witness).  In response to our questions on this point, Mr Kamal suggested that potentially Mr Sullivan could be recalled as a witness.  However, it did not seem to us that disclosure of material after the release of the substantive decision would allow the Respondents to put the material to Mr Sullivan or make submissions upon it.  Once we had released our decision then we would have no jurisdiction to direct that a witness be recalled and, even if we could recall a witness at that point, cross-examination of a witness at that stage would have no effect on a decision which had already been issued.  In the circumstances we advised Mr Kamal that we would note the offer but record that it came late in the proceedings.  During the Appellant’s reply, Mr Kamal resurrected this offer, in part to clarify that the offer was that the Appellant would disclose the material to the Respondents, so that the Respondents could rely upon it if they wished, but that the Appellant did not accept that privilege had been waived at any earlier stage or that privilege would be waived by that disclosure.  Unfortunately, it was still not clear to us how the Appellant proposed that the Respondents could rely upon that material if disclosure occurred after the conclusion of the hearing and the release of the decision.  We noted the fact of the repeated offer and that it came extremely late in the proceedings.
Our conclusion on this issue  
35.           In considering the effect of our conclusion that privilege has been waived, we are anxious that we should attempt to achieve the fairness between the parties which would have been achieved if the documents in question had been disclosed before the hearing took place.  We have noted Mr Kamal’s offer to disclose the material after our decision is released but, as we set out above, there appear to us to be practical issues which prevent us (and the Respondents) from taking up that offer.  In the circumstances of this case, we consider that it would be appropriate for the Tribunal to draw an adverse inference from the Appellant’s failure to disclose documents containing legal advice over which we have determined privilege has been waived. 
36.           Having reached our conclusions in respect of that final preliminary issue, we now set out the evidence we heard and our approach to that evidence before stating the facts we find as a result of hearing the evidence and drawing relevant inferences from not being shown material over which privilege has been waived.”