LITIGATION PRIVILEGE: WHEN DOES IT START? HOW DOES THE COURT DEAL WITH ISSUES ARISING? A HIGH COURT CASE

February 23, 2022 · by · in Civil evidence, Disclosure

It is difficult to envisage a more apposite tribunal than Charles Hollander QC when matters relating to documentary evidence are in issue.  This makes the reading of the decision in Kyla Shipping Co Ltd & Anor v Freight Trading Ltd & Ors [2022] EWHC 376 (Comm) of considerable interest.  The judgment relates to matters of litigation privilege and waiver of privilege and provides a useful summary of the relevant principles. Here we look at that part of the judgment that deals with litigation privilege.  There is a consideration of the relevant principles and then how they should properly be applied to the facts of this case, where the situation was extremely nuanced.

 

THE CASE

The court as asked to determine issues relating to disclosure in relation to an ongoing commercial dispute between the parties.

LITIGATION PRIVILEGE

The claimants instructed an expert to advise them in relation to grievances that existed with the defendant. The expert was instructed for one purpose, however other matters came to light which formed the subject matter of the dispute being litigated.  The court had to determine whether the initial report of the expert was subject to litigation privilege. This centred around whether litigation was in “reasonable contemplation” at the time the expert was instructed.

THE JUDGMENT ON LITIGATION PRIVILEGE

The judge reviewed the law relating to litigation privilege.
    1. In order to make good a claim for litigation privilege it must be shown by the party asserting a claim for privilege that the document in question was created for the dominant purpose of conducting litigation in reasonable prospect.
    1. The dominant purpose test derives from Waugh v British Railways Board[1] where the House of Lords regarded it as insufficient that a document was prepared for two equal purposes if only one of those was a privileged purpose.
    1. In Starbev GP Ltd v Interbrew Central European Holding BV[2] Hamblen J said:
“11. The legal requirements of a claim to litigation privilege may be summarised as follows:
(1) The burden of proof is on the party claiming privilege to establish it – see, for example, West London Pipeline and Storage v Total UK [2008] 2 CLC 258 at [50].
(2) An assertion of privilege and a statement of the purpose of the communication over which privilege is claimed in a witness statement are not determinative and are evidence of a fact which may require to be independently proved. The court will scrutinise carefully how the claim to privilege is made out and the witness statements should be as specific as possible – see, for example, Sumitomo Corporation v Credit Lyonnais Rouse Ltd (14 February 2001) at [30] and [39] (Andrew Smith J); West London Pipeline and Storage Ltd v Total UK Ltd [2008] EWHC 1729 (Comm) at [52], [53], [86] (Beatson J); Tchenguiz v Director of the SFO [2013] EWHC 2297 (QB) at [52] (Eder J).
(3) The party claiming privilege must establish that litigation was reasonably contemplated or anticipated. It is not sufficient to show that there is a mere possibility of litigation, or that there was a distinct possibility that someone might at some stage bring proceedings, or a general apprehension of future litigation – see, for example, United States of America v Philip Morris Inc [2004] EWCA Civ 330 at [68]; Westminster International v Dornoch Ltd [2009] EWCA Civ 1323 at paras [19] – [20]. As Eder J stated in Tchenguiz at [48(iii)]: “Where litigation has not been commenced at the time of the communication, it has to be ‘reasonably in prospect’; this does not require the prospect of litigation to be greater than 50% but it must be more than a mere possibility”.
(4) It is not enough for a party to show that proceedings were reasonably anticipated or in contemplation; the party must also show that the relevant communications were for the dominant purpose of either (i) enabling legal advice to be sought or given, and/or (ii) seeking or obtaining evidence or information to be used in or in connection with such anticipated or contemplated proceedings. Where communications may have taken place for a number of purposes, it is incumbent on the party claiming privilege to establish that the dominant purpose was litigation. If there is another purpose, this test will not be satisfied: Price Waterhouse (a firm) v BCCI Holdings (Luxembourg) SA [1992] BCLC 583, 589–590 (cited in Tchenguiz at [54]-[55]); West London Pipeline and Storage Ltd v Total UK Ltd at [52].
12. In relation to the Court’s approach to the assessment of evidence in support of a claim for privilege, it has been stated that it is necessary to subject the evidence “to “anxious scrutiny” in particular because of the difficulties in going behind that evidence” – per Eder J in Tchenguiz at [52]. “The Court will look at ‘purpose’ from an objective standpoint, looking at all relevant evidence including evidence of subjective purpose” – ibid. 48(iv). Further, as Beatson J pointed out in the West London Pipeline case at [53], it is desirable that the party claiming such privilege “should refer to such contemporary material as it is possible to do without making disclosure of the very matters that the claim for privilege is designed to protect“.
    1. This passage is often cited. I would simply make two points on it. Firstly, references to West London Pipeline must be read subject to WH Holding (see below). Second, the expression “anxious scrutiny” is much used in administrative law and I would suggest is better avoided in the present context.
    1. Hamblen J continued:[3]
“19. …I consider the effect of [Mr Golden’s] evidence to be that he had a suspicion concerning the sale of the Business by Starbev and instructed Barclays to investigate in order to see if there was substance to his suspicion. Barclays’ role was investigatory. Unless and until they confirmed that there was substance to Mr Golden’s suspicion there was no real reason to anticipate litigation.”
20. This is borne out by his statement that “it occurred to me that ICEH would end up in another dispute with Starbev”. This suggests no more than that such a dispute was a possibility. It does not connote that it was reasonably anticipated both that there would be such a dispute and that it would result in litigation. Whether or not it would do so was unlikely to be known until Barclays investigated and reported.
21. That Barclays’ role was investigatory is borne out by a number of contemporaneous documents which refer to their role as one of checking the position and calculating the payment that might be likely to come to ICEH as a result of the sale.”
    1. In West London Pipeline and Storage Ltd v Total UK Ltd[4] Beatson J had reviewed the authorities as to when the court could go behind a claim for privilege in an affidavit and held that under the CPR the court could do so when it was shown with “reasonable certainty” that the claim for privilege was in error. This was disapproved by the Court of Appeal in WH Holding Ltd v West Ham United FC Ltd.[5] The Court of Appeal, chaired by Etherton MR, held that the “reasonable certainty” test derived from the pre-1893 position when the court had no power to inspect and the modern position was that the court had a discretion to inspect.
    1. Whilst the Court of Appeal in WH Holding disapproved part of what Beatson J said, they endorsed other parts of his analysis as to how the court should deal with an affidavit or witness statement claiming privilege. The burden is on the party claiming privilege to prove it. An assertion of privilege and a statement of the purpose of the communication over which privilege is claimed in a witness statement is not determinative. The court has four options if it is not satisfied as to the assertion of privilege on the basis of the affidavit or witness statement. It may conclude that the evidence does not establish a legal right to withhold inspection and order inspection. It may order a further witness statement to deal with matters which the earlier witness statement does not cover or on which it is unsatisfactory. It may inspect the documents, or order cross-examination on the witness statement.
    1. Beatson J also considered what should be the content of such an affidavit. He said:
“Thus, affidavits claiming privilege whether sworn by the legal advisers to the party claiming privilege as is often the case, or, as in this case, by a Director of the party, should be specific enough to show something of the deponent’s analysis of the documents or, in the case of a claim to litigation privilege, the purpose for which they were created. It is desirable that they should refer to such contemporary material as it is possible to do so without making disclosure of the very matters that the claim for privilege is designed to protect.“[6]
    1. In Axa Seguros SA De CV v Allianz Insurance Plc[7] Christopher Clarke J summarised the position as follows:
“An affidavit which sets out a claim for privilege by stating the alleged purpose of the communication is not conclusive where it is appears from other evidence that the characterisation of the documentation is misconceived. The court must consider the issue in the light of all the evidence including, but not limited to any statement of purpose.”
    1. It is also relevant that the person who has all the relevant knowledge will be the party claiming privilege. The other side will have none. Thus one must bear in mind as Neuberger J said in the pre- CPR case Bank Austria Aktiengesellschaft v Price Waterhouse[8]:
“A claim for privilege is an unusual claim in the sense that the legal advisers to the party claiming privilege are, subject to one point[9] the judges in their own client’s cause. The court must therefore be particularly careful to consider how the claim for privilege is made out.”
    1. This serves to emphasise the importance of the position of the lawyer who determines whether to claim privilege as officer of the court. There is simply no escaping the lawyer being judge in his own, or his client’s own, cause in such cases.
    1. “In reasonable prospect” means more than a mere possibility but not necessarily a 50% or greater chance. In United States v Philip Morris,[10] the judge had said that the person seeking to claim privilege must show that he was aware of circumstances which rendered litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility:
“The requirement that litigation be “reasonably in prospect” is not in my view satisfied unless the party seeking to claim privilege can show that he was aware of circumstances which render litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility.”
    1. In Axa Seguros SA De CV v Allianz Insurance Plc[11] Christopher Clarke J said:
“The dividing line between circumstances which afford a reasonable prospect of litigation (but not necessarily that litigation is more probable than not), on the one hand, and a (mere) possibility of litigation on the other, is not entirely clear. The fact that one or more conditions have to be fulfilled in order for a dispute to arise which requires the commencement of litigation in order to resolve it does not necessarily mean that litigation is only a possibility. Much may depend on what, at the relevant time, is the prospect that the conditions will be fulfilled.“
    1. In Director of the SFO v ENRC[12] the SFO conducted an investigation into possible overseas bribery and corruption by ENRC. ENRC conducted an internal investigation using external solicitors under the 2009 SFO Self-Reporting Guidelines. At first instance Andrews J held that the documents there created were not protected by legal advice privilege. It was argued that litigation was in reasonable contemplation and thus the documents were protected by litigation privilege. The judge rejected the claim for litigation privilege because there was no evidence that there was anything beyond the unverified allegations themselves. The Court of Appeal reversed the judge on litigation privilege on the facts. They adopted a much more generous view as to when litigation can be said to be in reasonable contemplation. It is notable that the court treated it as something of an issue of principle. Vos C said that it was obviously in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists, prior to going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege for the work product and consequences of their investigation. Were they to do so, the temptation might well be not to investigate at all, for fear of being forced to reveal what had been uncovered, whatever might be agreed with a prosecuting authority[13]. The judge had held that adversarial litigation was not in reasonable contemplation in August 2011. By contrast the Court of Appeal accepted[14] that adversarial litigation was in contemplation by April 2011, long before the SFO investigation commenced.
  1. I was also referred to Sothebys v Mark Weiss[15] where Sothebys instructed an expert to consider whether a Franz Hals painting was forged; if the expert concluded that the it was, Sothebys would rescind the sale contract and it is was argued litigation would be in reasonable contemplation. Teare J held, rejecting the claim to litigation privilege, that the correspondence had two purposes: one to decide whether the painting was a fake and whether to rescind, a second to enable Sothebys to defeat the arguments of Mark Weiss in the anticipated litigation. The decision is fact specific, but I would point out that the facts bear a real similarity to Re Highgrade Traders Ltd[16] where a report into the cause of a fire commissioned both to ascertain the cause of the fire and to determine whether the insurance claim could be resisted, and the Court of Appeal held the two purposes could not be separated but constituted a “single wider purpose”. It is not obvious that the two purposes of Sothebys were other than two aspects of the same purpose.

THE DECISION IN THIS CASE

The judge went on to consider those principles applied to the facts of this particular case.  He found that the issue of privilege should be re-considered by the claimant’s solicitor in the light of the findings he had made and the guidance given.

    1. The evidence indicates that an expert was instructed in the light of the correspondence cited above in order that the expert report could be used as a basis for supporting NEL’s mismanagement allegation in correspondence. I do not consider the dominant purpose was for litigation in reasonable prospect:
a. There is no suggestion in the correspondence that proceedings or a counterclaim in proceedings is envisaged in relation to the “mismanagement” claim.
b. The parties to any such litigation would have not been the shareholders of Kyla, so the dispute is with different parties
c. The references in Mr Buss’ first witness statement to the purpose of the instruction being for “ballast in the correspondence” are difficult to square with a claim for litigation privilege.
d. All in all, so far as one can judge from the relatively limited explanation provided, the instruction of an expert appears to have been for the purpose of trying to provide backing for the mismanagement claim, albeit that the parties to such a claim would have been different, but it does not seem to have reached a stage where it was possible to say that litigation in relation to the mismanagement claim was in reasonable prospect
    1. I do not consider that the Defendants’ submission on dominant purpose adds anything to the above.
    1. The information provided by Mr Buss in support of the challenged claim to privilege is very limited. Mr Buss seems to have been concerned by the possibility of a claim that by providing more information he was waiving privilege in the underlying material. However, given the apparent difficulty in making good a claim for litigation privilege in the light of the evidence I have set out above, I would also hold that the Claimants have not discharged the burden of proving their claim for litigation privilege.
Litigation privilege: disposal
    1. Despite my findings above, there is no reason to doubt that Mr Buss is an experienced and competent solicitor whom the court can trust to redo the privilege assessment in the light of my direction.
  1. I will order that the Claimants reconsider the claim for litigation privilege on the basis that litigation privilege may not be claimed for the mismanagement dispute but may be claimed when litigation was in reasonable contemplation in respect of the mispricing claim. The Claimants should serve a further list supported by a confirmatory witness statement from Mr Buss or another appropriate individual. I would expect that to be done, given the imminence of the trial, within 7 days from the hand down of this judgment.
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