High Court considers application of much-criticised exception to without prejudice rule

The High Court has held that the content of “without prejudice” (“WP”) communications between the parties to the proceedings was inadmissible, though the fact of the WP negotiations could be referred to. The counterparty to the WP communications would be prejudiced by admission of the communications, and it had neither deployed the content of the WP communications nor put in issue matters which were only justiciable by reference to them: Briggs v Clay [2019] EWHC 102 (Ch).

Whilst the court accepted that the list of exceptions to the WP rule is not closed, it emphasised that any exception must be of the same character or a principled and incremental extension of an existing exception. The court did not regard the present case as falling within the scope of the (much-criticised) exception established in Muller v Linsley & Mortimer [1996] 1 PNLR 74, where the WP communications were relevant to whether a party had reasonably mitigated his loss in negotiating a compromise of separate proceedings, and the party had himself put the reasonableness of the settlement in issue. The court noted that the Muller exception had not previously been held to apply in the case of WP negotiations in the very claim that is before the court, and said that the exception sought to be identified in this case risked significantly undermining the policy of encouraging parties to attempt to settle disputes in multi-party litigation.

The decision provides a careful analysis of previous case law on the scope of the WP rule, and seeks to clarify the extent of the Muller exception which is a matter of some uncertainty. The decision suggests that the exception will come into play where negotiations are relied on to prove some collateral matter and the other party to the WP communications will be unaffected by admission of the WP material, or where the party seeking to assert the privilege has raised an issue which is only justiciable upon proof of the WP communications.

Matthew Eglezos, a Senior Associate (Australia) in our disputes team, outlines the decision below. Continue reading

High Court restrains claimants from using defendant’s privileged material obtained from third parties in unknown circumstances

A recent High Court decision demonstrates that, whilst confidentiality is a prerequisite to a claim for privilege, information will not cease to be confidential unless it is in fact known to a “substantial number of people”: Winstone v MGN Ltd [2019] EWHC 265 (Ch).

In the present case, the court found that the quality of confidentiality had not been lost where the contents of the privileged material had come into the hands of a small group of investigative journalists and at least one investor, and may have (though the evidence did not establish that it probably did) come into the hands of others.

The decision is consistent with previous judgments which suggest that the courts may take quite a robust view as to when privileged material has (or has not) entered the public domain, so as to lose the requisite quality of confidentiality, particularly where the privileged material has been obtained in breach of confidence (see this post) or through inadvertence (see this post) – that is, outside the disclosure process in legal proceedings, where different principles apply (as considered here). Continue reading

High Court upholds claim to privilege in respect of underlying instructions to law firm relating to escrow monies

The High Court has rejected an application for disclosure of documents containing the underlying instructions to a law firm acting for a party funding a transaction, in circumstances where the law firm provided a confirmation to the seller as to the nature of its irrevocable instructions regarding escrow monies: Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd [2019] EWHC 3 (Comm).

The court rejected an argument that the instructions were not confidential, or that privilege had been waived, because the client had authorised the law firm to state what instructions it had been given. The judge emphasised that underlying instructions do not cease to be confidential just because the client authorises the solicitor to divulge information it has received in confidential communications from the client. The question is whether the client has given the solicitor authority to disclose the underlying communications.

Caution is needed however. It may be difficult to distinguish between cases where the client has given the solicitor authority to disclose the underlying communications and cases where it has merely authorised the solicitor to divulge information received from the client without disclosing the underlying communications. Particular care should also be taken where a party is considering referring to lawyer/client communications in the context of legal proceedings. If the court finds that the underlying privileged material is being deployed in the proceedings it may order those communications to be disclosed along with any other documents relevant to that issue, under the principle of collateral waiver or the “cherry picking rule”.

The decision also illustrates the broad protection which can be afforded to lawyer/client communications under the head of legal advice privilege. The privilege is not limited to requests for legal advice or the provision of advice, but will include the entire continuum of communications between solicitor and client relating to a transaction in which the solicitor has been instructed, provided that they are directly related to the solicitor’s performance of his professional duty as legal adviser. Here that principle meant that instructions regarding the holding and transfer of escrow monies were privileged, even if they did not contain advice on matters of law. Continue reading

Privilege no defence to notice requiring production of client’s privileged documents to regulator

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor’s conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client’s privilege. Accordingly, the fact that documents are subject to a client’s privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

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Two recent decisions consider application of principle of limited waiver of privilege

In two recent decisions, the High Court has considered the extent to which a party can provide privileged documents to a third party for a particular purpose without resulting in a wider waiver of privilege. The decisions illustrate the importance, in these circumstances, of making clear any intended limits on the use of the privileged material.

In FM Capital Partners Ltd v Marino & ors [2017] EWHC 3700 (Comm) the court found that a company had waived litigation privilege in an investigation report because, before the proceedings had commenced, it had provided a copy of the report to one of the defendants (its former CEO) for the purposes of a disciplinary hearing against him. The company had not imposed an express restriction on the use of the report. In the absence of such a restriction, and given that the report was prepared for the purposes of potential litigation including litigation against the defendant, the natural inference was that the defendant would be free to use the report for that litigation.

In Belhaj v Director of Public Prosecutions [2018] EWHC 513 (Admin), in contrast, the government had shared its privileged advice with the police, the Crown Prosecution Service (CPS) and Director for Public Prosecutions (DPP) subject to a clear express limitation on its use. In those circumstances, the court found privilege had not been waived for the purposes of a subsequent judicial review application. It rejected the claimants’ argument that the judicial review was so closely linked to the review for which the advice had been shared that there was an inferred waiver for the purposes of the judicial review. The contrary conclusion would mean that, in almost any case where one government department waived privilege to assist another, privilege might be lost for the purpose of a subsequent judicial review, and this would be strongly against the public interest.

The FM Capital decision also contains interesting comments on the dominant purpose test for litigation privilege where a company is facing serious potential claims against it as well as dealing with disciplinary proceedings against an employee. Although each case will turn on its facts, the decision suggests that a court might readily accept that the company’s greater concern will be preparing for the litigation, rather than disciplining its own employee, potentially making it easier to establish a claim for litigation privilege in these circumstances. Continue reading

A reminder that inadvertent disclosure of privileged material will not engage the cherry picking rule

The Administrative Court has held that a defendant did not lose privilege in unredacted passages of documents that had been provided for inspection, as it was obvious that the passages had been inadvertently disclosed, and that there was no question of a wider waiver of privilege as the material had not been deliberately deployed: Belhaj v Director of Public Prosecutions [2018] EWHC 514 (Admin).

Where a party to litigation deploys privileged material to support its case on the merits, the “cherry picking” rule (or the principle of collateral waiver) may result in a wider waiver than intended; the court may require disclosure of further privileged material to avoid unfairness or misunderstanding of the material disclosed.

The present decision is a reminder that the “cherry picking” rule has no part to play outside the context of a deliberate deployment of privileged material. Where privileged material is inadvertently provided for inspection, and the mistake is not obvious, this is likely to result in a loss of privilege in respect of that material. However, the loss of privilege will be limited to the material disclosed and will not extend to other privileged material which has not been provided. Continue reading

Reliance on an absence of legal advice may waive privilege

The First Tier Tribunal (Tax Chamber) has held that a party waived privilege in certain communications with its lawyers by relying on the absence of relevant advice from those lawyers in order to support its application to lodge an appeal out of time. The waiver extended to other privileged communications concerning the need for an appeal and the procedure and time-limits for such an appeal: ‘D’ Cash & Carry Limited v HMRC [2017] UKFTT 0732 (TC).

The decision illustrates the dangers of relying on the content of privileged discussions, whether that is to support a party’s claim or defence on the merits or its position in a procedural application. It also shows that a waiver may result even where it is an absence of advice on a particular issue, rather than any positive advice given, that is relied on.

As ever, where a party waives privilege in some of its privileged material, a court or tribunal may find that the effect is to waive privilege more broadly, so that other privileged communications on the same “transaction” or “issue” must be disclosed to avoid unfairness and ensure the court has the full picture. This is known as the principle of collateral waiver, or the cherry-picking rule. A decision to rely on privileged material should never be taken lightly. There may, however, be little choice, if a party’s only excuse for a failure to take some essential step comes down to the content of its legal advice or the conduct of its lawyers. Continue reading

High Court decision illustrates limits of the cherry-picking rule

The High Court has concluded that, where a claimant waived privilege in certain emails to rebut a suggestion of recent fabrication, only a small number of other privileged documents had to be disclosed as a result of the cherry-picking rule: Holyoake v Candy [2017] EWHC 387 (Ch). (The decision dates from February, but a transcript has only recently become available.)

Whenever a party to litigation deploys privileged material to support its case on the merits, the principle of collateral waiver, also known as the “cherry picking” rule, may come into play to result in a wider waiver than intended. In general terms, the court will require disclosure of any further privileged material that forms part of the same “transaction” or “issue”, and any further material required to avoid unfairness or misunderstanding of the material disclosed.

On the facts of the present case, the court found that the relevant “transaction” was relatively narrow; in effect, it was limited to the particular series of emails that had been relied on. It did not extend to later privileged communications on the same topic, and fairness did not require their disclosure.

In practice, however, parties who are considering deploying privileged material to support their case should take a cautious approach. Although the judge in this case indicated that his decision was based on a wish for a consistency and predictability, the courts’ approach to this question is anything but predictable – in particular, because it is highly fact-dependent. Accordingly, a decision to waive privilege should never be taken lightly.

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Court of Appeal prevents use of privileged document disclosed in error where mistake obvious to second more senior solicitor

The Court of Appeal has added what it has termed “a modest gloss” to the principles on when the court will restrain use of a privileged document disclosed in error, on the basis that there has been an obvious mistake. The court may grant relief where the solicitor inspecting the document does not spot the mistake, but refers the document to a colleague who appreciates the error before use is made of the document: Atlantisrealm Limited v Intelligent Land Investments (Renewable Energy) Limited [2017] EWCA Civ 1029.

The question before the court is therefore not only what the first reviewer of a document appreciated, but also what other (including more senior) members of the team later appreciated (or presumably should have appreciated) when the document was shown to them. Continue reading

Employee could not assert privilege against employer over documents on employer’s IT system

The High Court has found that a company's Group Finance Director could not assert privilege against the company in respect of documents he had created for the purpose of obtaining legal advice in respect of his divorce proceedings, which the company had found on its computer systems. The documents were not confidential as against the company, as the claimant did not have a reasonable expectation of privacy in respect of the documents: Simpkin v The Berkeley Group Holdings PLC [2017] EWHC 1472 (QB).

The decision suggests that where documents are created and/or stored on an employer's IT systems, and subject to its IT policy, the employee may not be able to assert privilege as against the employer in respect of those documents. The court distinguished a similar High Court decision, Shepherd v Fox Williams [2014] EWHC 1224 (QB), as in that case the privilege belonged to a third party (the employee's girlfriend) who was not subject to the employer's IT policy.  

In the present decision the court notes that the relevant documents were not password protected or segregated from the claimant's work related documents, and did not indicate on their face that they were privileged. It is not clear whether the decision would have been different had such factors been present. 

The decision illustrates that employees who create or store documents on IT systems controlled by their employer may not be able to assert privilege against that employer. Employers should not however assume that they will always be entitled to use such material – as noted above, the position may be different if steps are taken to indicate that the documents are confidential to the employee, for example if they are password protected or stored in a private folder separate from the employee's work documents.

The decision also contains interesting comments on when the court will exercise its discretion to restrain an opponent from using confidential and privileged documents which have come into its hands, and on the dangers of referring to privileged documents even for the purpose of supporting a claim to privilege.

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