Privilege remains an important battleground in lawyers’ liability claims. It has long been a rule of evidence and a fundamental right, entitling a party to withhold certain evidence from being disclosed. The most common claim to privilege is legal advice privilege where a client is protected from having to disclose legal advice from their lawyer. There were two noteworthy decisions in 2014.
In July last year, the High Court considered issues of privilege in a case where a claimant suing its solicitor had to decide whether to waive privilege in order to show it had properly mitigated its loss. That was the Rentokil Initial 1927 PLC v Goodman Derrick LLP1 decision. It is helpful for defendant law firms and their PI insurers.
The inadvertent disclosure of privileged material is not uncommon. The Court of Appeal grappled with this recently in the Tchenguiz v Director of the Serious Fraud Office2 decision. It made important findings regarding inadvertent disclosure.
The claimant alleged that its lawyers were negligent in drafting a property development contract which meant the developer could avoid completing the contract. The claimant settled the case with the developer for a lower sum than that provided for in the contract and sued its lawyers.
The court found that the firm was not negligent and that the developer would have lost the arbitration on its construction of the relevant clauses. It criticised the claimant for not revealing the privileged advice it was given by its legal team in relation to the merits of success in the arbitration. The failure to waive privilege meant that the judge had no evidence with which to analyse whether the claimant had acted reasonably in settling the arbitration. The judge’s view was that the claimant would have succeeded and accordingly he concluded the claimant had acted unreasonably.
The burden of proving failure to mitigate is on the defendant (Banco de Portugal v Waterlow & Sons Ltd3). In Rentokil, the judge reversed that burden by requiring the claimant to prove that it had analysed the risks of the arbitration and reasonably concluded that it should settle the dispute. Defendant lawyers and their insurers will take comfort from this judgment and it will place a greater burden on claimants to explain the basis of their decision to settle or pursue underlying proceedings. This may require claimants to waive privilege in their legal advice.
The key principle which applies where a party inadvertently allows privileged documents to be inspected is that a solicitor considering documents made available by their opponent is entitled to assume that any privilege has been waived, unless the documents have been made available pursuant to an “obvious mistake” (Al-Fayed v Commissioner of Police for the Metropolis4).
It was common ground between the parties that the lawyer involved believed the documents had been disclosed intentionally (ie subjective awareness was not an issue). At first instance, Mr Justice Eder held that the SFO errors in giving disclosure would have been obvious to a reasonable solicitor. The Court of Appeal overturned the ruling, on the basis that in each specific context when a privileged document was disclosed, it could not be said that it was obvious disclosure had been given by mistake. In addition, if the particular lawyer did not realise the mistake then it was more difficult for a judge to hold that the mistake was obvious.
This decision makes it more difficult for a party who has made the mistake to prevent use of the privileged material when it is out in the open. This will obviously affect both sides although it is arguably of more benefit to defendants as claimants are perhaps more likely to exaggerate the merits of their case which might be revealed by such privileged material. Either way, parties will be wary before applying for injunctions to restrain use of privileged material inadvertently disclosed.