WHAT IS LITIGATION FOR THESE PURPOSES?
Litigation means “adversarial” proceedings. This test was established by the majority of the House of Lords in Re L  AC 16, where it was held that child care proceedings fell outside the doctrine of litigation privilege as they are investigative and non-adversarial in nature.
What qualifies as adversarial proceedings? Examples include:
- court proceedings;
- proceedings before an employment tribunal;
- proceedings before a foreign court.
On the other side of the line are proceedings which are essentially administrative or fact-finding. In the Three Rivers litigation, it was accepted that the Bingham Inquiry, set up to investigate the collapse of BCCI, was not adversarial and therefore litigation privilege was not available.
The line between adversarial and non-adversarial proceedings is not always easy to draw. Difficult questions can arise in the regulatory context as to whether a particular process (eg under financial services, companies or competition legislation) gives rise to litigation privilege.
There is a suggestion in Three Rivers No 6 that inquiries cannot qualify as adversarial proceedings for the purposes of litigation privilege. Lord Scott states: “The Bingham Inquiry could not have been described as adversarial. It was, as inquiries invariably are, an inquisitorial proceeding.” While there is an obvious grammatical link between “inquiries” and “inquisitorial”, this is probably an over-simplification. The general view among legal commentators is that whether a particular inquiry or process should be considered adversarial or inquisitorial depends not on terminology but on the nature of the process and how it is conducted.
The nature of some inquiries or investigations may change from merely fact-finding to adversarial during the course of the process, and therefore privilege may be available for documents produced for the later stages. In practice, however, identifying the boundary may be difficult.
The availability of litigation privilege for investigations under the Competition Act 1998 was addressed by the Competition Appeal Tribunal in Tesco Stores Limited & ors v Office of Fair Trading  CAT 6. It held that notes of third party witness interviews conducted by Tesco’s lawyers were subject to litigation privilege, as by the time the interviews took place the OFT’s investigation could be regarded as “sufficiently adversarial” to amount to litigation. By that point the OFT had issued two “Statements of Objections” alleging infringements of the Act and Tesco was contesting the OFT’s case. The case demonstrates that litigation privilege can arise in competition investigations. However, because the ruling deliberately focused on the particular facts of the case and not wider questions of principle, it remains untested whether litigation privilege will be available for all such investigations and at what stage it might arise in a given case. For more detail on the decision and its implications see our Competition, regulation and trade e-bulletin (26 March 2012).
In SFO v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (QB) (“ENRC“), in the analogous context of criminal proceedings, the High Court found that an SFO investigation was not itself litigation for the purposes of litigation privilege. Only the criminal prosecution was litigation for these purposes. See “High Court decision takes restrictive approach to both litigation privilege and legal advice privilege” (11 May 2017). The Court of Appeal decision in ENRC does not disturb that approach (though it takes a less strict view of when a prosecution was reasonably in contemplation – see below).
If in doubt
If there is any doubt as to whether a particular process, or stage of a process, is sufficiently adversarial to give rise to litigation privilege, the safest course is to assume that only legal advice privilege will apply, and therefore only lawyer / client communications for the purpose of giving or obtaining legal advice will be covered.
Previous proceedings – once privileged always privileged
Note that the litigation for which the document was created need not be the same as the litigation in which the privilege is asserted – ie you can claim litigation privilege for documents created for previous proceedings (whether actual or contemplated).
WHEN IS LITIGATION IN REASONABLE PROSPECT?
A “mere possibility” of litigation will not suffice, though the prospect need not be greater than 50%. In United States of America v Philip Morris Inc and others  EWCA Civ 330 the Court of Appeal agreed with the judge’s view that “a general apprehension of future litigation” or “a distinct possibility that sooner or later someone might make a claim” were not sufficient to give rise to litigation privilege. On the facts, in circumstances where there was tobacco litigation in the US but no claims had been threatened or made in the UK, litigation was held not to be in reasonable prospect.
Litigation subject to contingencies
The question of whether litigation is reasonably in prospect as opposed to a mere possibility is not always straightforward. As illustrated by the High Court decision in Axa Seguros S.A. de C.V. v Allianz Insurance plc and others  EWHC 268 (Comm) the fact that a number of conditions must be fulfilled in order for a dispute to arise does not necessarily mean that litigation is a mere possibility. Much will depend on the prospect that the conditions will be fulfilled. See “Litigation privilege: applying the test” (22 March 2011) for more detail on the Axa decision.
The approach taken in Axa bears similarities to the Court of Appeal decision in Westminster International BV v Dornoch Ltd  EWCA Civ 1323. In that case the claimants’ vessel had been involved in a collision and they obtained a survey report which estimated the cost of repairs as €91 million. This meant that the vessel was a constructive total loss (since the cost of repairs was over €73.5 million) which would trigger a liability of €145 million under the policy. The defendant insurers instructed their own surveyor to comment and advise on the claimants’ report. A dispute arose as to whether the defendants could assert privilege in this surveyor’s report.
The claimants argued that when the report was obtained, the defendants had no reason to believe it would reach a different result, and so there was no more than a “mere and contingent” possibility of litigation. The Court of Appeal rejected that argument. As the court said, this was a huge claim, and the consequence of the cost of repairs exceeding €73.5 million was to trigger a liability of €145 million. When the defendants received the claimants’ report they had serious concerns about the reliability of the figures, for reasons stated in the evidence. Accordingly, the court said, it was as likely as not that their own surveyor would come up with lower figures, and if that was the case there would be a real prospect of litigation.
These cases demonstrate that litigation may be in “reasonable prospect” when a report is prepared, even though the report itself may (depending on its conclusions) result in there being no dispute between the parties. It seems to come down to whether there is sufficient prospect of the report’s conclusions leading to a dispute so that it can be said, at the time the report is made, that litigation is in reasonable prospect.
Contrast however Starbev GP Ltd v Interbrew Central European Holding BV  EWHC 4038 (Comm) where the court held that litigation was not in reasonable prospect at the time a third party bank’s report had been prepared. The bank had been instructed to investigate what were mere suspicions on the part of the defendant; unless and until that investigation confirmed there was substance to the suspicions, there was no real reason to anticipate litigation – see “Commercial Court rejects claim to litigation privilege” (13 January 2014).
In ENRC, referred to above, the High Court rejected the submission that litigation in the form of a criminal prosecution must be contemplated if a criminal investigation was contemplated – see “High Court decision takes restrictive approach to both litigation privilege and legal advice privilege” (11 May 2017). In the judge’s view, that would not necessarily be the case unless the person who anticipated the investigation was aware of circumstances that (once discovered) made a prosecution likely. It based this view on the prosecutor’s duty to be satisfied that there is a sufficient evidential basis for prosecution before bringing proceedings.
The Court of Appeal disagreed with that view, finding that the High Court judge had been wrong to conclude that a criminal prosecution was not reasonably in prospect at the time the relevant documents were created – see  EWCA Civ 2006, considered here “Court of appeal decision in ENRC: orthodoxy restored on litigation privilege but narrow interpretation of client remains for now” (5 September 2018). 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. The fact that the company might need to make further investigations before it could say with certainty that proceedings were likely did not prevent proceedings being in reasonable contemplation.
A matter of fact and degree
As will be clear from the above, the question of whether litigation is in reasonable prospect is a matter of fact and degree. Where the line will be drawn in a given case may not always be easy to predict.
It is clear from the authorities that the mere fact of instructing solicitors will not be sufficient to establish that litigation is in reasonable prospect (although it is likely to be a factor taken into account by the court). Conversely, so long as litigation was in reasonable prospect at the time the document was created, it does not matter whether proceedings are subsequently commenced.
If in doubt
If there is any doubt as to whether litigation is in reasonable prospect, it is best to assume that only legal advice privilege will apply. If that is the case, privilege will be available only for lawyer / client communications for the purpose of giving or obtaining legal advice.
Contemporaneous documents recording a party’s perceptions as to the likelihood of litigation may assist in establishing that litigation was reasonably in prospect at a particular time, although this will not be conclusive. Parties should therefore consider recording in writing when they consider litigation to be reasonably in prospect, in case this is disputed at a later date.
Note: Content up to date as at 14 February 2020
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