Court of Appeal confirms identity of those instructing lawyers not generally protected by litigation privilege

The Court of Appeal has held that the identity of those instructing lawyers on behalf of a corporate client are not generally protected by litigation privilege: Loreley Financing (Jersey) No 30 Ltd v Credit Suisse Securities (Europe) [2022] EWCA Civ 1484.

The court rejected the notion that litigation privilege protects all information falling within a “zone of privacy” around a party’s preparation for litigation. Instead, it emphasised that privilege attaches to communications (including secondary evidence of those communications) rather than information or facts divorced from them. Accordingly, there is no general principle that the identity of those giving instructions to a lawyer for the purposes of litigation will be protected.

The court recognised an exception, where the disclosure of the relevant individual’s identity would inhibit candid discussion with the lawyer and therefore affect the client’s ability to prepare its case – eg because it might tend to reveal something about the content of the communication with the lawyer or the litigation strategy being discussed. But that would have to be explained as the basis for the claim to privilege.

For more information on the decision, please see our Litigation Notes blog.

Bank’s privilege not lost despite opponent obtaining copies of documents in foreign proceedings

The High Court has held that a defendant bank was entitled to maintain privilege over certain documents even though the claimant companies had obtained copies of the documents from a third party pursuant to subpoenas in Thailand: Suppipat v Siam Commercial Bank Public Company Ltd [2022] EWHC 381 (Comm).

The decision will be of interest to financial institutions as it suggests that where a party has lawfully obtained documents in a foreign state which (as a matter of English law) are obviously privileged, that does not necessarily mean they will be available for use in litigation in England – particularly where the documents in question were obtained from a third party rather than the party entitled to assert the privilege and without notice to that party.

The decision is also of interest for its discussion of how the courts will determine whether or not a document remains confidential for these purposes. It suggests that the question is not simply a matter of whether the document has entered the public domain – though if that has happened, it will be clear that privilege is lost. The question appears to come down to whether the document has been obtained in circumstances which import an obligation of confidence, meaning the document is not properly available for use. This will be the case where a party receives an obviously confidential document in error or through illegitimate means, but it is not limited to those situations. As the judge put it, whether confidence has been lost is a “contextual and factual” question.

For a more detailed discussion of the decision, please see our litigation blog post.

BANKING LITIGATION PODCAST EPISODE 31: SPECIAL EDITION – PRIVILEGE

In this special edition of our banking litigation podcast, we consider some key issues on the topic of privilege which will be most relevant to in-house lawyers at banks and financial institutions. This episode is hosted by Ceri Morgan, a professional support consultant in our banking litigation team, who is joined by Claire Nicholas and Benedicte Perowne.

The focus of this special edition is on the thorny issue of who is the “client” for privilege purposes and how this will affect practical matters such as information gathering by the in-house legal team, communications with external lawyers and reporting to the board. We also look at the extent to which regulated firms can rely on privilege when asked to produce documents by their regulator.

Please do get in touch with your usual HSF contact should you wish to organise a privilege training session.

You can also listen on Apple, Spotify, or Soundcloud and find links to our blog posts on the cases covered in this podcast below:

Please subscribe to the podcast channel here to listen to our regular bite-sized broadcasts covering both litigation and regulatory developments for banks and other financial institutions.

Ceri Morgan
Ceri Morgan
Professional Support Consultant
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Claire Nicholas
Claire Nicholas
Senior Associate
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Benedicte Perowne
Benedicte Perowne
Senior Associate
+44 20 7466 2026

High Court finds accountants’ investigation report not protected by litigation privilege and considers requirements for obtaining disclosure under the Disclosure Pilot

The High Court has granted an application by a claimant state for orders that the defendant bank disclose an accounting firm’s investigation report (and associated documents) originally withheld from disclosure on the grounds of litigation privilege, as well as to disclose certain categories of documents on a Model E or “train of enquiry” basis and make further enquiries for “known adverse documents”: State of Qatar v Banque Havilland SA and others [2021] EWHC 2172 (Comm).

The decision does not establish new principles relating to litigation privilege, but is noteworthy as it underlines the difficulties caused by the dominant purpose test in establishing a claim for litigation privilege where documents were arguably produced for a number of purposes, including to deal with enquiries from regulators, rather than solely for the purpose of anticipated litigation.

The decision, in particular, illustrates the difficulties for financial institutions seeking to withhold or redact an investigation report (and associated documents) on the basis of litigation privilege where there is little evidence at the time the report was commissioned that: (i) adversarial proceedings were, or were regarded by the bank to be, reasonably in contemplation; and (ii) the sole or dominant purpose in commissioning the report was conducting, settling or avoiding litigation. However, the decision also appears to indicate that where an investigation report is found to be protected by privilege and has been provided to a regulator on a limited waiver basis, the courts will robustly resist any claims that privilege has been waived.

The decision also highlights that, even if disclosure has initially been ordered on a Model D basis (i.e. narrow search-based disclosure of documents which support or adversely affect any party’s case, similar to old-style standard disclosure) under CPR PD 51U (the Disclosure Pilot), the court may later order Model E disclosure (i.e. wide search-based disclosure, to include documents which may lead to a train of inquiry to result in the identification of other documents for disclosure) if appropriate in respect of specific issues.

It also provides useful guidance as to the requirement that a party to civil proceedings has an obligation to undertake reasonable and proportionate checks to enquire for known adverse documents with the relevant custodians, even if they have left the company. In particular, the court highlighted that a check to see if a custodian is aware of any known adverse documents is not satisfied simply by asking whether he or she used a personal email account to send or receive work related emails or a personal device to store work related documents. It was therefore necessary that the bank make further inquiries of certain custodians, as they may have been aware of adverse documents stored elsewhere.

We consider the court’s decision in more detail below.

Background

In mid 2017 several Arab nations severed diplomatic ties and took a number of other measures against the State of Qatar (the claimant). Allegedly at the time of the diplomatic crisis, a presentation was prepared by a former employee of a Luxembourg bank (the Bank), which referred to certain trading and public relations strategies aimed at causing financial damage to the claimant (the Presentation). In late 2017, the contents of the Presentation were featured in an article published on 9 November 2017 on a non-profit media website under the headline: “Leaked Documents Expose Stunning Plan to Wage Financial War on Qatar – and Steal the World Cup”.

Following the publication of the Presentation, the Bank, recognising that this was a serious matter which could have significant regulatory and legal consequences, notified its regulators, the Commission de Surveillance du Secteur Financier (the CSSF) and the Financial Conduct Authority (FCA), that it was investigating the matter. The Bank also (through its Luxembourg lawyers) instructed PricewaterhouseCoopers (PwC) to carry out a forensic investigation and prepare a report (the Investigation Report), which was issued in June 2018 and shared with the CSSF and FCA under a limited waiver.

In April 2019, the claimant brought a claim against the Bank and its former employee (together, the defendants) alleging that they had conspired with several Saudi Arabian and United Arab Emirates banks to attack the Qatari economy by manipulating its financial markets.

In March 2020, at the first CMC, the court gave directions for disclosure which was to be given in accordance with the Disclosure Pilot. Subject to certain exceptions, in most cases disclosure was to be given by the defendants by reference to Model D.

In January 2021, all the parties to the proceedings gave disclosure. The claimant subsequently applied to the court seeking orders that the Bank: (i) disclose the Investigation Report, any drafts and supporting documents prepared in connection with the Investigation Report; (ii) carry out further searches and/or further reviews of documents, including a more extensive review of certain telephone recordings by reference to Model E, due to the facts that had come to light since the first CMC; and (iii) make further enquiries with each of its custodians as to whether they were aware of any known adverse documents, and if so, that it take steps to locate such documents.

High Court decision

The court found in favour of the claimant and granted the orders sought.

The key issues which are likely to be of broader interest to financial institutions are summarised below.

1) The claim to privilege in the Investigation Report

The Bank submitted that it had been entitled to withhold from production or redact the Investigation Report and associated documents on the grounds of litigation privilege, stating that they were prepared: (i) at the time when adversarial proceedings by the claimant and/or the Bank’s regulators were reasonably in contemplation; and (ii) for the sole purpose of collecting evidence and enabling legal advice to be given to the Bank in connection with those anticipated proceedings. The Bank also argued that any waiver of privilege in providing the Investigation Report to the CSSF and FCA was only a limited waiver as it had been given to them under certain professional secrecy restrictions or mutual assistance provisions, which maintained the privileged nature of the document.

In addressing the Bank’s submission, the court considered the principles applicable to litigation privilege and limited waiver.

Litigation privilege principles

As the starting point, the court noted that Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2004] UKHL 48 provided an authoritative summary of the scope of and the requirements for a claim of litigation privilege:

“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 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.”

The court then went on to highlight the scope of each of the requirements in further detail:

  • Litigation must be in progress or in contemplation. Where litigation is not actually in progress at the time the relevant communications are made or procured, it was necessary to demonstrate that litigation was reasonably contemplated or anticipated. The “mere possibility” of litigation did not suffice for litigation privilege, nor was it enough that there was “a distinct possibility that sooner or later someone might make a claim”; but this did not necessarily mean that there must be a greater than 50% chance of litigation (as per United States of America v Philip Morris Inc. [2004] EWCA Civ 330).
  • Communication made for sole or dominant purpose of conducting litigation. What matters may not be the state of mind of the author of the communication but of the party that commissioned or procured it (as per Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027). Although ordinarily the privileged status of a communication falls to be assessed at the time the communication is made, if what matters is the instigating party’s purpose, the best guide to his or her purpose may be to consider matters at the point in time when the relevant communication is procured, recognising, of course, that a party’s purpose may change. The court also highlighted that a communication made for the sole or dominant purpose of “conducting litigation” also embraces communications made for the dominant purpose of obtaining information or advice in order to settle or avoid litigation (as per WH Holding Limited v E20 Stadium LLP [2018] EWCA Civ 2652).
  • Litigation must be adversarial. It was important to consider whether particular types of proceedings are properly regarded as adversarial or as investigative or inquisitive. In the court’s view, what was required for litigation privilege is a contemplation of adversarial litigation, not an investigative or inquisitive procedure. However, the court commented that what may start as an investigation may develop into adversarial proceedings (as per Tesco Stores Ltd v Office of Fair Trading [2012] CAT 6).

Limited waiver principles

The court highlighted that where documents are shown or provided to regulators on a limited waiver basis, and despite the existence of legal rights or duties on the part of the regulators to use, act on or even publish the documents pursuant to their regulatory powers, there will be no waiver of privilege where there were express confidentiality and non-waiver agreements between a bank and a regulator (as per Property Alliance Group Ltd v Royal Bank of Scotland plc [2015] EWHC 1557 (Ch)).

However, the court noted that the absence of an express non-waiver agreement between a bank and a regulator is not necessarily fatal. The court underlined that the question of whether there has been a general or only limited waiver requires the court to have regard to all the circumstances, including what was impliedly communicated between the parties and what each must or ought reasonably to have understood (as per Citic Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701).

Application of litigation privilege and limited waiver principles to the present case

The court held that the Investigation Report was not protected by litigation privilege and must be produced for inspection. Litigation privilege also did not apply to any drafts of the Investigation Report and associated documents prepared in connection with it (to the extent that they were in the Bank’s control). Similarly any documents withheld or redacted on the basis that they referred to the Investigation Report or PwC’s engagement were also required to be produced for inspection.

The court commented that at the time the Bank instructed PwC there was little evidence that the CSSF’s position was, or was regarded by the Bank, as hostile or that adversarial regulatory proceedings were, or were regarded by the Bank to be, reasonably in contemplation. There was also little evidence of the anticipation of adversarial proceedings from the FCA. The court noted that the CSSF’s letter of 13 November 2017 asked a number of questions about the Intercept Article and the Presentation, but it was not particularly aggressive or adversarial and it made no threat of proceedings. There was also nothing in the Bank’s subsequent communications with the CSSF that suggested that the CSSF was adopting an adversarial posture towards the Bank. In the court’s view, it did not consider that the CSSF’s involvement went beyond the investigative stage, nor was there anything to suggest that it would do so. Matters could not be judged with hindsight but the position remained that no proceedings were ever commenced against, and no sanctions were ever imposed on, the Bank by the CSSF. The court also highlighted that the Bank had no contact with the FCA prior to 13 November 2017, and subsequent communications fell short of an anticipation of adversarial proceedings. There was also no evidence of any communication between the claimant and the Bank, or any intimation or fear of a claim by the claimant against the Bank, prior to 13 November 2017 when PwC was instructed.

The court said that, even if it were the case that the Bank reasonably contemplated adversarial litigation as at 13 November 2017 when PwC was instructed or at some later stage prior to June 2018, it was also not satisfied that PwC’s instruction, or the Bank’s request that PwC should produce a report, were for the dominant purpose of the anticipated litigation. In the court’s view, the two most prominent purposes behind PwC’s instruction were to: (i) find the facts, including how a copy of the Presentation had been obtained from the Bank’s files; and (ii) to satisfy the CSSF and put the Bank in a position where it could answer the CSSF’s questions.

Finally, the court said that, as it had found that the Investigation Report was not privileged, it was unnecessary to deal with the argument that privilege in the Investigation Report had been waived by the provision of the report to the CSSF and ultimately to the FCA. However, the court did underline that it would have required a good deal of persuading that the circumstances in which the document was provided to the regulators meant that privilege in the report had been waived generally.

2) Model E Disclosure

The claimant submitted that, whilst Model D may have been appropriate as at the first CMC, in the events that had happened since, a Model E review was now necessary and appropriate.

The court held that Model E disclosure was appropriate on a limited basis.

The court commented that it had not been satisfied at the first CMC that the evidence justified the application to the defendants’ disclosure of Model E to any of the issues for disclosure. Model E was intended to be used only in exceptional cases.

However, in light of the further material now available and what it revealed, it was appropriate to revisit this issue. In the court’s view, a Model E review limited to this particular category of documents (i.e. the telephone recordings) and to a particular issue for disclosure was reasonable and proportionate, and also necessary for the just disposal of the proceedings.

3) Adverse documents

The Bank submitted that the checks it had done or had agreed to do in relation to adverse documents were sufficient. It would contact disclosure custodians with a view to determining whether they used personal email accounts to send or receive work related communications, and whether they used personal devices to store work related documents.

The Disclosure Pilot principles

In its analysis of this issue, the court highlighted that the key principles from the Disclosure Pilot and related authorities to note in relation to known adverse documents were as follows:

  • All forms of extended disclosure include known adverse documents (as per paragraph 8.3 of the Disclosure Pilot).
  • Known adverse documents are defined as “documents (other than privileged documents) that a party is actually aware (without undertaking any further search for documents than it has already undertaken or caused to be undertaken) both (a) are or were previously within its control and (b) are adverse” (as per paragraph 2.8 of the Disclosure Pilot).
  • The circumstances in which a corporate entity, such as the Bank, is regarded as aware of known adverse documents will be when: “any person with accountability or responsibility within the company or organisation for the events or the circumstances which are the subject of the case, or for the conduct of the proceedings, is aware. For this purpose it is also necessary to take reasonable steps to check the position with any person who has had such accountability or responsibility but who has since left the company or organisation” (as per paragraph 2.9 of the Disclosure Pilot).
  • The Disclosure Pilot provisions impose an obligation upon a party to undertake reasonable and proportionate checks to see if it has, or has had, known adverse documents, and if so to undertake reasonable and proportionate steps to locate them. These include checks with persons with accountability or responsibility for relevant events even if they have left the company (as per Castle Water Limited v Thames Water Utilities Limited [2020] EWHC 1374 (TCC)).

Application of Disclosure Pilot principles to the present case

The court ordered the Bank to make further enquiries of its custodians about the existence of known adverse documents. The court commented that if an individual is a person with accountability or responsibility within the meaning of paragraph 2.9 of the Disclosure Pilot, then a check to see if he or she is aware of known adverse documents is not satisfied simply by asking whether he or she used a personal email account to send or receive work related emails or a personal device to store work related documents. In the court’s view, the individual custodians may have still been aware of adverse documents stored elsewhere.

Julian Copeman
Julian Copeman
Partner
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Maura McIntosh
Maura McIntosh
Professional Support Consultant
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Benedicte Perowne
Benedicte Perowne
Senior Associate
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Nihar Lovell
Nihar Lovell
Professional Support Lawyer
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Elina Kyselchuk
Elina Kyselchuk
Associate
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Privilege in the context of regulatory investigations: latest guidance from the High Court

Another recent High Court decision has considered the question of privilege in a regulatory context: A v B & Anor [2020] EWHC 1491 (Ch).

As with other recent decisions of this kind, the issue arose in the context of an auditor required to produce documents to its regulator, the Financial Reporting Council (“FRC”). The decision is likely to be of broader interest to financial services institutions, because it may indicate the approach the court is willing to take more generally in cases involving a regulator using its powers of document compulsion, such as the FCA.

In the present case, the FRC sought disclosure from the auditor of documents belonging to the auditor’s client, and over which the client claimed privilege. However, there was a dispute between the auditor and its client as to whether the documents were – in fact – privileged. Importantly, the court held that the auditor must form its own view on whether documents are privileged and can therefore be withheld on that ground, regardless of whether the privilege is that of the auditor or its underlying client. It considered that the duty to disclose was on the auditor and disclosure could only be refused on the grounds that a document was actually privileged. Mere assertion of privilege by the client was insufficient.

In the context of the FCA’s powers to compel a regulated person to disclose documents, the question would be whether the client’s documents are “protected items” under s.413 of the Financial Services and Markets Act 2000. Following the decision in Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177 (see our post here), there could be no argument that disclosure of the documents (if indeed subject to privilege) would not amount to infringement of the client’s privilege, or that the client’s privilege has been lost by providing those documents (on a limited waiver basis) to the regulated person.

However, the same question may arise as to which party is required to determine whether privilege attaches to the documents in question. Subject to any appeal, the decision suggests that the regulated person cannot refuse to produce documents on the grounds that a claim to privilege has been asserted or could be asserted by a client (or other third party to whom duties of confidentiality are owed); the regulated person must take its own view on the privilege claim.

For a more detailed analysis of the decision, please read our litigation blog post.

High Court takes expansive view of when reference to legal advice may result in broader waiver

The High Court has held that a bank waived privilege in all contemporaneous communications with its lawyers relating to particular transactions that were alleged to be a sham, as the bank had deployed the lawyers’ advice that the transactions were lawful in order to support its case on the merits. That was regardless of whether the particular documents relied on had already lost privilege by the time the bank had deployed them (having been provided to the SFO and used in a separate criminal trial): PCP Capital Partners LLP v Barclays Bank plc [2020] EWHC 1393 (Comm).

This is an application of the principle of collateral waiver, or the “cherry picking rule”, which says that a party who relies on privileged material to support its claim may be required to disclose other privileged material relating to the same issue or transaction. The principle is designed to avoid the unfairness which might result if the court were denied the full picture.

The decision will be of particular interest to financial institutions, because it considered the scenario where the bank had provided the documents relied on in this case to the SFO under a limited waiver of privilege, and the documents had been relied on by the SFO in the context of criminal proceedings. Unusually for cases involving waiver, the documents had therefore already lost their privileged status by the time the bank deployed them in the present civil proceedings. The court rejected the argument that, because of this, reliance could not result in a waiver. The bank had provided the documents to the SFO knowing they might be deployed at the criminal trial. The decision leaves open whether the position might have been different if the bank had had no involvement at all in their deployment. However, this could leave financial institutions in the position where privileged documents put in the public domain through criminal or regulatory investigations, cannot be relied on in follow-on civil proceedings, for fear of collateral waiver of privilege attaching to a broader set of privileged communications.

In many previous cases the court has held that privilege will not be waived if a party relies on the “effect” of privileged material rather than its “content” – though the dividing line in practice has been far from clear. The court in this case equates the “effect” of legal advice with its conclusion or outcome, but says the distinction cannot be applied mechanistically. Instead, the question of whether privilege has been waived depends on an “acutely fact-sensitive exercise” as to whether there is reliance, the purpose of that reliance and the particular context. It’s clear that, if this approach is followed in other cases, a waiver may result even if only the conclusion of legal advice is relied on. But beyond that, the decision arguably makes it no easier to draw a line between references that will result in a waiver and those that will not.

For a more detailed discussion of the decision, please see our litigation blog post.

Impact of Court of Appeal’s privilege decision in Sports Direct v FRC for the financial services sector

A judgment handed down yesterday by the Court of Appeal considering the question of privilege in a regulatory context represents good news for financial institutions: Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177.

The Court of Appeal considered the situation where a regulated person was being investigated by its regulator and held its own client’s privileged documents (i.e. privilege belonged to the client, not the regulated person). In a decision which caused some concern for the financial services industry (and other regulated sectors), the High Court had held that the production of the client’s privileged documents to the regulator would not infringe the legal professional privilege belonging to the client: The Financial Reporting Council Ltd v Sports Direct International plc [2018] EWHC 2284 (Ch) (see our litigation blog post on the first instance decision). Happily, the Court of Appeal has now overturned that decision.

The primary concern for financial institutions arising from the High Court’s decision was the very real possibility of a single regulator (such as the FCA) in relation to both parties. Take, for example, the case of an FCA investigation into the issue of securities by a listed financial institution which has been advised by an investment bank. The effect of the first instance decision was that the investment bank’s privileged documents may have been disclosable to the FCA (either by the issuer or directly from the bank) if it is the issuer which is the target of the investigation, even though the FCA is also the investment bank’s own regulator, on the basis that the investment bank’s privilege would not have been infringed by such disclosure. The High Court did not consider any specific safeguards for where both adviser and client were regulated by a single regulator and implicitly expected that the regulator would simply be able to compartmentalise its knowledge in such a scenario. Furthermore, even putting to one side whether such compartmentalisation was realistic, it appeared to overlook the impact such a loss of confidentiality (particularly if the documents were subsequently referred to in any regulatory notice) would have on privilege (either in the UK or in other jurisdictions).

Taking this example of the FCA as the single regulator, whilst there could have been arguments that the privileged documents were “protected items” under s.413 of the Financial Services and Markets Act 2000 (FSMA) , the High Court’s reasoning in FRC v Sports Direct was that the equivalent privilege carve-out was only relevant if the privilege would be infringed, and it held that there was no infringement where the privilege belonged to the client rather than the regulated person. Accordingly, s.413 FSMA could effectively be bypassed. In any event, the High Court was prepared to give the equivalent carve-out for privileged documents a much more restricted application than it appeared to have on its face. The High Court decision therefore represented a very real erosion of privilege.

The Court of Appeal’s decision to overturn the High Court’s judgment in this case will therefore be welcomed by financial institutions. The decision is helpful in reinforcing the protection of privilege in the regulatory context, whether the privilege belongs to the person who is subject to a regulatory investigation or a client of that person. In either case, privilege will be a defence to a notice requiring production of documents under a regulator’s statutory powers, unless the statute overrides privilege either expressly or by necessary implication.

The decision also confirms that privilege cannot be claimed for non-privileged documents merely because they are attached to privileged communications. The court rejected an attempt to distinguish between a non-privileged attachment itself and the communication of that attachment between lawyer and client.

For further detail on this decision, see the Litigation Notes blog post.

Harry Edwards
Harry Edwards
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Ceri Morgan
Ceri Morgan
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Court of Appeal decision in ENRC: orthodoxy restored on litigation privilege, but narrow interpretation of “client” remains for now

The Court of Appeal has today handed down its eagerly awaited decision in the ENRC appeal: The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006. At first instance, the High Court took a restrictive approach to both litigation privilege and legal advice privilege (see our summary of the decision here). The Court of Appeal has allowed the appeal on the question of litigation privilege but has, with apparent reluctance, dismissed the appeal on legal advice privilege, concluding it is a matter for the Supreme Court.

In relation to litigation privilege, the Court of Appeal has, helpfully, disagreed with the High Court’s overly strict approach to whether documents have been prepared for the dominant purpose of litigation. The High Court found that, where ENRC’s purpose was to investigate allegations made by a whistleblower, this was not sufficient to meet the dominant purpose test. The Court of Appeal disagreed, finding that this was all part and parcel of preventing or defending litigation. It also disagreed with the High Court’s problematic view that documents prepared in order to avoid contemplated litigation were not covered by litigation privilege. In the Court of Appeal’s judgment, the purpose of avoiding or settling proceedings is covered by litigation privilege, just as the purpose of resisting or defending them.

In relation to legal advice privilege, the Court of Appeal considered itself bound by Three Rivers No 5 to find that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. In other words, it agreed with the judge’s interpretation of the effect of Three Rivers No 5 [2003] QB 1556, as also arrived at by Hildyard J in the The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here).

However, the court said that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so. This was in part because, in the Court of Appeal’s view, the decision puts large corporations at a disadvantage, when it comes to legal advice privilege, compared to individuals and small corporations. Those tasked with seeking legal advice on behalf of a large corporation are less likely to have the relevant factual information, and will therefore have to rely on employees whose communications with the lawyers will not, on the reasoning in Three Rivers No 5, be covered by privilege (unless litigation privilege applies). The Court of Appeal also accepted that English law is out of step with international common law on this issue, which it considered undesirable. However, it said the matter would have to be considered again by the Supreme Court in this or an appropriate future case.

Background

The background to the decision is summarised in our post on the first instance decision (linked above). Briefly, the issues arise in the context of a criminal investigation by the SFO into the activities of ENRC. As part of its investigation, the SFO issued notices under section 2(3) of the Criminal Justice Act 1987 against various parties, including ENRC, to compel the production of certain categories of documents.

The documents sought include, among others, notes taken by ENRC’s former lawyers (Decherts) of interviews with its employees and former employees as part of an internal investigation by ENRC which was prompted by a whistleblower’s allegations.

At first instance, Mrs Justice Andrews rejected ENRC’s claims to privilege (save in respect of one category of documents which is not relevant for present purposes), finding that the documents were not covered either by litigation privilege or by legal advice privilege. ENRC appealed.

Decision

The Court of Appeal (the Chancellor of the High Court, the President of the Queen’s Bench Division and McCombe LJ) upheld the appeal on litigation privilege, but dismissed it on legal advice privilege. The court handed down a unanimous judgment.

Litigation privilege

The test for litigation privilege is whether, at the time a communication is made:

  1. Litigation, in the form of adversarial proceedings, is reasonably in contemplation.
  2. The communication is made for the dominant purpose of conducting that litigation.

Litigation in reasonable contemplation

The Court of Appeal held that Andrews J was wrong to conclude that a criminal prosecution was not reasonably in prospect at the relevant time. In the Court of Appeal’s view, the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a settlement.

The court said it was “not sure that every SFO manifestation of concern would properly be regarded as adversarial litigation”, but where the SFO specifically made clear to the company the prospect of a criminal prosecution, and legal advisers were engaged to deal with that situation, there was a clear ground for contending that criminal prosecution is in reasonable contemplation.

While a party anticipating possible prosecution might need to make further investigations before it could say with certainty that proceedings are likely, that uncertainty would not in itself prevent proceedings being in reasonable contemplation. As the court put it:

An individual suspected of a crime will, of course, know whether he has committed it. An international corporation will be in a different position, but the fact that there is uncertainty does not mean that, in colloquial terms, the writing may not be clearly written on the wall. We think the judge was wrong to regard the uncertainty as pointing against a real likelihood of a prosecution.”

Dominant purpose of litigation

The Court of Appeal also held that Andrews J was wrong to conclude that, if litigation was in contemplation, the documents were not prepared for the dominant purpose of that litigation. In the Court of Appeal’s judgment, there were a number of flaws in Andrews J’s decision on this point.

First, it disagreed with the judge’s view that documents prepared for the purpose of settling or avoiding contemplated litigation were not covered by litigation privilege. This, it said, was an error of law. The Court of Appeal held that, in both the civil and the criminal context, legal advice given in order to avoid or settle proceedings was as much protected by litigation privilege as advice given for the purpose of resisting or defending them.

Second, the Court of Appeal said that the judge did not properly interpret the leading cases of Waugh v British Railways Board [1980] AC 520 (HL) and Re Highgrade Traders [1984] BCLC 151 (CA). Waugh established that, where there are two purposes of equal importance, only one of which concerned litigation, litigation privilege is not available. In Highgrade Traders, the court was prepared to find that investigating the facts (in that case the cause of a fire) was a subset of advising on the defence of contemplated proceedings. In the present case, the judge found that ENRC’s dominant purpose was to investigate the facts to see what had happened and deal with compliance and governance, rather than to defend any proceedings (even if, contrary to her view, such proceedings were in reasonable contemplation). The Court of Appeal disagreed. As in Highgrade Traders, in the present case it concluded that the need to investigate the existence of alleged corruption was just a subset of defending the litigation. It commented:

Although a reputable company will wish to ensure high ethical standards in the conduct of its business for its own sake, it is undeniable that the ‘stick’ used to enforce appropriate standards is the criminal law and, in some measure, the civil law also. Thus, where there is a clear threat of a criminal investigation, … the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation.”

Thirdly, the court disagreed with the judge’s interpretation of the contemporaneous material as showing that ENRC always intended or agreed to share the core material they obtained from their interviews and investigations with the SFO, as opposed to the report they ultimately prepared. While ENRC led the SFO to believe it might in future waive privilege in such material, it never actually did so.

It is also worth noting that the Court of Appeal disagreed with the judge’s view that, where a document is created with the intention of showing it to the opposing party, that means it cannot be subject to litigation privilege. As the court said, there are many circumstances where solicitors may spend much time fine-tuning a response to a claim to increase the prospects of an early settlement. The discussions surrounding the drafting of such a letter would, it said, be as much covered by litigation privilege as any other work done preparing to defend the claim.

Legal advice privilege

Legal advice privilege applies to lawyer/client communications for the purpose of giving or obtaining legal advice. There is no need for litigation to be in contemplation.

At first instance, the judge endorsed the decision of Hildyard J in RBS regarding the proper scope of the “client” for privilege purposes in a corporate context, agreeing that the “client” comprises only those who are authorised to seek and obtain legal advice on behalf of the company. She considered both that this was the effect of the Court of Appeal’s decision in Three Rivers No 5, and that it was right as a matter of principle.

The Court of Appeal noted that its conclusions in relation to litigation privilege made the question of legal advice privilege far less important. However, since the matter had been fully argued and the Law Society had intervened on that issue, it indicated how it would have determined the question.

First, the court said, it would have determined that the court in Three Rivers No 5decided that communications between a corporation’s employee and its lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client. To this extent, it agreed with the decision of Andrews J.

The Court of Appeal noted that it had been pressed with the argument, on behalf of ENRC, that if that is what Three Rivers No 5 decided then it was wrong. In the Court of Appeal’s judgment, however, that was a question that could only be determined by the Supreme Court. However, it said that it could “see much force” in ENRC’s submissions.

The Court of Appeal commented it did not think a meticulous analysis of the 19th century authorities should be determinative, as those cases were decided when the distinction between litigation privilege and legal advice privilege was very much in its infancy. It was more important that a principled analysis of the purpose of legal advice privilege should be undertaken. The court referred to the opinion of Lord Scott in Three Rivers No 6 [2004] UKHL 48 which, it said, set out the parameters. In summary, there are numerous reasons why “individuals, whether humble or powerful, or corporations, whether large or small”, may need to seek legal advice or assistance. This is strongly in the public interest. To enable appropriate advice to be given, however, it is essential that the full and complete facts are placed before the lawyers, and clients may not do so with the necessary candour unless they can be assured that what they tell their lawyers will not be disclosed without their consent.

The Court of Appeal said it was clear from Lord Scott’s comments that large corporations, as much as small corporations and individuals, need to be able to seek and obtain legal advice without fear of intrusion. However, if legal advice privilege is confined to communications between lawyer and “client“, in the narrow sense of those authorised to seek and receive legal advice on a corporation’s behalf, this places large corporations at a disadvantage. For such organisations, it is unlikely that the information on which legal advice is sought will be in the hands of the main board or those it appoints to seek and obtain the legal advice.

If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice. In our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach.”

Further, the Court of Appeal agreed with the submissions made on behalf of the Law Society that English law is out of step with international common law on this issue, as other common law jurisdictions have chosen to depart from Three Rivers No 5. It said it is “undoubtedly desirable” to have a common approach, particularly when so many multinational companies operate and have subsidiaries in numerous common law countries (although they did not favour the dominant purpose test for legal advice privilege adopted in place of Three Rivers No 5 in Australia and Hong Kong).

For these reasons the court concluded that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so.

Rupert Lewis
Rupert Lewis
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Simon Clarke
Simon Clarke
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Kirsten Massey
Kirsten Massey
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+44 20 7466 2218

High Court decision supports orthodox view of litigation privilege

The High Court has found that documents prepared by the defendant in the course of an investigation into allegations by HMRC were protected by litigation privilege: Bilta (UK) Ltd (in liquidation) & ors v Royal Bank of Scotland Plc & anor [2017] EWHC 3535 (Ch).

The decision arguably departs from the reasoning in the controversial decision in SFO v ENRC [2017] EWHC 1017 (considered here), where the court took a very strict approach to the question of whether documents prepared in the course of an investigation were for the dominant purpose of litigation. The court in ENRC found that the primary purpose was to find out if there was any truth in allegations made by a whistleblower and (if there was) to decide what to do about it, and took the view that this was not sufficient to meet the dominant purpose test. It also drew a rather problematic distinction between documents prepared in order to take legal advice in relation to litigation, which would be privileged, and those aimed at trying to avoid contemplated litigation, which it said were not. The ENRC decision is subject to an appeal which is due to be heard by the Court of Appeal in July this year.

In the present case, the court expressed the view that there was “something of a tension” between ENRC and the Court of Appeal’s decision in Re Highgrade Traders[1984] BCLC 151 (CA), in which the court was prepared to find that discovering the truth and enabling advice to be given in relation to litigation both formed part of a single overarching purpose. Similarly, on the facts of the present case, the court found that the defendant’s subsidiary purpose of avoiding litigation if possible could be “subsumed into” the dominant purpose of preparing for litigation which it considered almost inevitable. The court said it was necessary to take a “realistic, indeed commercial, view of the facts”, which supported the defendant’s case.

The court emphasised that determining the dominant purpose is a question of fact in each case, and so conclusions reached in one case cannot simply be applied across to another context. However, the present decision is encouraging in that it appears to return to what may be considered a more orthodox view of litigation privilege than that underlying the decision in ENRC. Until the Court of Appeal has considered these issues in ENRC, however, parties may wish to take a cautious view.

For more detail, read our litigation blog post.

The price of changing experts: disclosure of privileged report

In a recent decision, the Technology and Construction Court granted defendants permission to adduce expert opinion evidence from a second expert, after their first expert had ceased to act, on the condition that the defendants disclose the first expert’s draft report. However, the defendants were not required to disclose their solicitors’ attendance notes of meetings with the first expert, on the basis that it was not a “strong case of expert shopping”: Stewart Coyne v (1) Alec Morgan (2) Alex Harrison (T/A Hillfield Home Improvement) (unreported, 24 May 2016).

The decision is a helpful reminder that the court’s power to impose conditions when granting permission to adduce expert evidence is not limited to instances of “expert shopping” (in the sense of shopping around for a more favourable expert opinion in place of one already obtained). It suggests that once a party has engaged in a pre-action protocol process and appointed an expert in that context, it should expect to be required to waive privilege in  that expert’s report if it later wishes to obtain permission to adduce evidence from a different expert. That approach applies irrespective of the party’s motivation for changing expert.

However, only in cases where there is strong evidence of “expert shopping” is it likely that the court will require that a party discloses other forms of document that contain the substance of the expert opinion (for example solicitors’ attendance notes of meetings with the expert).

For more information, please see our Litigation Notes blog.