Litigation privilege: High Court decision shows continued need to beware of dual purpose

The High Court has found that correspondence with experts was not subject to litigation privilege as it was prepared for two purposes, only one of which was for contemplated litigation, and the claimant had not established that the litigation purpose was dominant: Sotheby’s v Mark Weiss Ltd [2018] EWHC 3179 (Comm).

The other purpose, the court found, was to take a commercial decision as to whether to rescind the sale of a painting. Although a decision to rescind would likely, perhaps inevitably, lead to litigation, the court found that the two purposes could not be regarded as one and the same. This would appear to contrast with cases such as Highgrade Traders [1984] BCLC 151, in which the Court of Appeal accepted that the purpose of considering whether an insurance claim could be resisted (in a case of suspected arson) was a litigation purpose, and what might appear to be a separate purpose (namely, to ascertain the cause of the fire) was part and parcel of that purpose.

However, the court in the present case rejected the attempt to draw an analogy with Highgrade, or with the recent Court of Appeal decision in SFO v ENRC Ltd [2018] EWCA Civ 2006, considered here, which had appeared to return to a more benevolent approach to the question of whether there is a dual purpose, in the context of litigation privilege, following the very strict approach taken at first instance in that case.

The present decision emphasises the fact-sensitive nature of the assessment of dominant purpose, and that the court’s analysis in one case cannot necessarily be applied in different circumstances. This underlines the difficulty for commercial parties in assessing, in any case where a document or communication may be seen as having a dual purpose, whether or not it will be protected by litigation privilege.

Background

The claimant, Sotheby’s, was appointed as the defendant’s exclusive agent to sell a painting by private treaty. The sale contract with the buyer provided that the sale would be rescinded and the purchase price returned if the buyer provided written evidence raising doubts as to the authenticity or attribution of the painting, and Sotheby’s determined that the painting was counterfeit. The buyer did so, a report having been obtained from an expert, Mr Martin.

Sotheby’s commissioned a second expert, Mr Twilley, to conduct a peer review of Mr Martin’s report. Having considered these reports, Sotheby’s determined that the painting was a counterfeit, rescinded the sale and returned the purchase price to the buyer. Sotheby’s then brought proceedings seeking rescission of its contract with the defendant and repayment of the purchase price.

The defendant brought an application for inspection of the correspondence passing between Sotheby’s and the two experts, which had been withheld on grounds of litigation privilege.

Decision

The High Court (Teare J) rejected the claim to privilege and ordered that the correspondence be provided for inspection.

There was no dispute as to the test for establishing a claim to litigation privilege, namely that the correspondence must have been brought into existence for the “dominant purpose” of litigation which was in reasonable contemplation.

The judge rejected Sotheby’s suggestion that the Court of Appeal’s decision in ENRC had changed the law in cases where a document was created for two purposes, one of which was for use in litigation. On the contrary, he said, the Court of Appeal had confirmed the classic statement of principle in Waugh v British Railways Board [1980] AC 520 to the effect that unless litigation is (at least) the dominant purpose, litigation privilege cannot apply.

Teare J referred to the evidence provided by Sotheby’s solicitor in support of the claim to privilege, which included the following:

  • “All the way through the preparation of the report, the fact that the matter was likely to end up in court (if the report could not be used to persuade the other side to settle) was the perspective from which the report was being prepared by all parties…”
  • “[Sotheby’s solicitors] were advising on the report, and on its role in the forthcoming decision as to whether to rescind (which would almost inevitably result in proceedings being issued), from the perspective of how it would be used as evidence in the litigation.”
  • “… had litigation not been contemplated, then findings from Mr Martin would have been sought, but no detailed written report of this kind would have been embarked upon and [Sotheby’s solicitors] would not have been engaged to undertake this exercise with Mr Martin.”

Teare J said he did not find this explanation easy to accept. There was no doubt that litigation was contemplated. However, it was also contemplated that Sotheby’s would, in the context of its agreement with the buyer, need to determine whether the painting was counterfeit and, if so, rescind the sale and return the purchase price – thus the reference in the above to the “forthcoming decision as to whether to rescind.”

Assessed objectively, Teare J concluded, the correspondence took place for two purposes: first, to enable that decision to be taken; and, second, for use in the contemplated litigation. Both purposes appeared to be of equal importance and relevance, or in any event Sotheby’s was unable to establish that the litigation purpose was dominant. A similar conclusion was reached in respect of the correspondence with Mr Twilley.

The judge considered Sotheby’s attempt to draw an analogy with ENRC, in which the Court of Appeal had considered whether the dominant purpose behind the creation of documents in an internal investigation was to investigate the facts to see what had happened and deal with compliance and governance issues or to defend a contemplated criminal prosecution, and had concluded it was the latter. The Court of Appeal in that case stated:

“Although a reputable company will wish to ensure high ethical standards in the conduct of it business for its own sake, it is undeniable that the ‘stick’ used to enforce appropriate standards is the criminal law…. 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.”

Sotheby’s submitted that the present case was analogous to ENRC, in that litigation would inevitably follow from the commercial decision, and that litigation was the “stick” which motivated the correspondence, so that the dominant purpose of the correspondence was to assist Sotheby’s in the litigation.

Teare J rejected this argument, commenting that the assessment of dominant purpose is fact sensitive and so “it is unsafe to use the determination of dominant purpose in one case to assist in identifying the dominant purpose in another”. The “stick” analogy was, he said, no doubt appropriate in ENRC where criminal proceedings were used to enforce appropriate standards of corporate governance, but in the present case civil proceedings were not a “stick” in the same sense. He added:

“I do not read the ENRC case as deciding that whenever litigation is the ‘inevitable’ consequence of taking a particular commercial decision, the dominant purpose of documents produced for the making of that decision is necessarily their use in the contemplated litigation.”

The judge similarly rejected Sotheby’s attempt to rely on the decision in Re Highgrade Traders [1984] BCLC 151, in which the Court of Appeal considered a report commissioned by insurers into the cause of a fire where arson was suspected. The court in that case concluded that what appeared to be two purposes, namely to inform the insurers’ solicitors as to whether the insurance claim could be resisted and to ascertain the cause of the fire, were all part of a single overarching purpose. By contrast, Teare J said, in the present case there were two purposes which “could not in a realistic and commercial sense be regarded as one and the same”.

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