The principle of open evidence – that all relevant material should be put before a court to enable it to deal justly with a particular case – is a strong feature of the English justice system. However, there are certain restrictions on what a court may see. Some recent cases – especially those dealing with legal professional privilege – have clarified the boundary between what the court gets to see and what it does not. The basic rule, though, is this: to be admissible, evidence must be both relevant and not subject to an exclusion.
Some documents that appear to be pertinent may, in fact, be regarded as irrelevant in law and consequently inadmissible. For instance, evidence about the parties’ subjective intentions is legally irrelevant when it comes to construing a contract.
The recent case of Dolphin Tanker Srl v Westport Petroleum Inc  EWHC 2617 (Comm) provides an even starker example. It also highlights the application of the recent update to Practice Direction 62 of the Civil Procedure Rules (CPR), which took effect from 1 October 2010.
Dolphin Tanker was an appeal to the High Court on a point of law regarding an arbitration award under section 69 of the Arbitration Act 1996. The arbitration had focused on the construction of certain clauses in a charterparty, and in particular the question of exactly which oil companies were included in the term “oil majors”. The charterparty provided that either party could appeal to the High Court on a question of law.
The shipowner appellant wanted to put a number of documents (besides the charterparty and arbitration award) before the court, as it argued that this extra material was relevant to the interpretation of the charterparty clauses. However, the judge – Mr Justice Simon – disagreed. He said that the additional documents were irrelevant, adding that they “starkly” demonstrated the importance of applying the relevant principles “rigorously” to exclude inadmissible evidence.
Mr Justice Simon applied the rule that, in an appeal from an arbitration award on a point of law, only the award and the relevant contract should be put before the court. Exceptionally, the court may also see documents which (according to the arbitration award) have contractual effect but whose terms are not fully set out in the award itself. This makes it possible for a court to see documents that “have a high degree of relevance” to the key question of law and without which the court cannot do its job properly.
The revised Practice Direction 62 says (at paragraph 12.5) that the court may see “any document … which is referred to in the award and which the court needs to read to determine a question of law arising out of the award”. The judge emphasised that this only applies to a document that the court needs to read, so the revised practice direction has not after all widened the scope of the evidence that can be heard in arbitration appeals.
The public policy argument for this rule is that, in line with their agreement, the parties have the right to have an arbitration panel – rather than a judge – decide the facts of their dispute. The appeal must be decided on the facts as determined by the award, and the only evidence about the commercial background that is admissible is the information that is contained in the award. To admit further evidence would be to risk the High Court making findings of fact, rather than law, at the expense of the arbitration agreement.
Relevant evidence may be rendered inadmissible by an exclusion. The list of exclusions has changed over time. For instance, the old common law rule against most hearsay evidence in civil proceedings was abolished by Parliament (see the Civil Evidence Act 1995).
The main exclusions are:
- an express or implied agreement preventing the evidence from being seen by the court and the without prejudice rule;
- the privilege against self-incrimination;
- legal professional privilege;
- public interest immunity;
- a statute imposing secrecy about the evidence; and
- cases where it would be disproportionate for the evidence to be disclosed (see CPR rule 31.7) or produced for inspection (see CPR rule 31.3(2)).
This list is a mixture of substantive and procedural rules. Legal professional privilege and the privilege against self-incrimination, for instance, are fundamental rights, guaranteed by article 6 of the European Convention on Human Rights and the Human Rights Act 1998. In contrast, the last exception listed above is more procedural in nature, being underpinned by the policy concerns articulated in the overriding objective in CPR rule 1 of enabling the court to deal with cases justly.
In Oceanbulk Shipping & Trading SA v TMT Asia Ltd  UKSC 44, the UK Supreme Court ruled on the precise boundary of the without prejudice rule. In this case, the parties embarked on a course of negotiations on a without prejudice basis. They ultimately entered into a settlement agreement. A dispute then arose over the construction of an obligation in the agreement to “co-operate to close out the … balance” of a number of forward contracts that hedged the cost of chartering cargo ships.
The question for the Supreme Court was whether relevant evidence stemming from the course of the negotiations – and which related to the factual background and the commercial circumstances of the contract – was rendered inadmissible by the without prejudice rule.
Lord Clarke explained the public policy underlying the rule: “unseen dangers may lurk behind things said or written” during negotiations, which must be neutralised to promote the achievement of a settlement. However, he also recognised that there are already several exceptions to the rule – for example, in relation to a claim for rectification of a settlement agreement.
The court concluded that evidence about the without prejudice negotiations should be admissible for the purpose of construing the settlement agreement. This would uphold, rather than endanger, the underlying public policy of encouraging settlements. Any other conclusion would introduce an “unprincipled distinction” between the interpretation of settlement agreement cases, and, say, rectification cases, where an exception to the without prejudice rule is already recognised.
Phillips v Newsgroup Newspapers Ltd  EWHC 2952 (Ch) clarified the scope of an exception to the privilege against self-incrimination. In this case, Nicola Phillips, a celebrity publicist, applied for an order that private investigator Glenn Mulcaire (who had previously been convicted of mobile telephone hacking alongside the News of the World’s royal correspondent Clive Goodman) should answer questions about whether he had also hacked into her mobile phone. Mr Mulcaire’s lawyers argued that he was protected by the privilege against selfincrimination and therefore entitled to refuse to answer such questions.
It was not clear whether, having been prosecuted once already, Mr Mulcaire’s risk of further prosecution for any hacking offence was big enough to give rise to the privilege. However, Mr Justice Mann decided that MrMulcaire was entitled to “the benefit of any doubt”, so the privilege was prima facie available to him. That was not the end of the story, though. Section 72 of the Senior Courts Act 1981 removed the protection of the privilege for offences relating to “commercial information”. Mr Justice Mann said that messages left on a celebrity publicist’s mobile phone were “commercial information”, as MrMulcaire would not have been interested in them had they not possessed commercial value. Accordingly, Mr Mulcaire was ordered to answer the relevant questions.
The fraud exception
Legal professional privilege comprises two categories: legal advice and litigation advice privilege. The first protects communications between a lawyer and client in a “relevant legal context”, where the client is receiving and/or seeking advice. The second protects communications that are made for the dominant purpose of giving or receiving legal advice, or collecting evidence, in connection with prospective litigation. Unlike legal advice privilege, however, litigation privilege may protect communications between the client and a third party.
The scope of the fraud exception to legal professional privilege has been clarified by the decision in The Kamal XXVI, The Kamal XXIV v The Ariela  EWHC 2531 (Comm).
The owners of The Ariela had incurred over $1m in costs defending a claim by the owners of The Kamal. Kamal’s action had been funded, and their solicitors instructed, by a Lloyd’s syndicate. The judge had concluded that Kamal’s claim was fraudulent from the start, and that it resulted from exaggerated statements by Kamal about the damage that had been caused by the collision of vessels at sea. Ariela applied to the court for an order that the Lloyd’s underwriters pay the costs incurred by them which could not be recovered from Kamal.
Ariela also applied for the disclosure of certain documents that the underwriters claimed were protected by both legal advice and litigation privilege. These documents were relevant to the question of whether the underwriters should have discovered the fraud earlier.
It was accepted that Kamal, who had committed the fraud, would not have enjoyed any privilege in relation to any documents that furthered the fraud, even if their solicitors had not knowingly assisted in it. However, there was a question as to whether this fraud exception also applied to the Lloyd’s underwriters, when both they and the solicitors they instructed were innocent. The judge ruled that, because the underwriters and solicitors had been used as a mechanism for facilitating Kamal’s fraud, the fraud exception applied. Consequently, there was no legal professional privilege protecting from disclosure any legal advice given to the underwriters. The judge said that bringing a third party’s wrongdoing to light must – “in the interests of justice” – sometimes prevail over the privilege of an innocent client.
Legal advice by non-lawyers
Legal advice privilege protects advice given by lawyers. That includes solicitors, barristers and foreign lawyers. It is not the status of the lawyer in itself that protects their communications with clients, but rather the quality of the advice, which must be provided in a “relevant legal context”.
R (Prudential plc) v Special Commissioner  EWCA Civ 1094 was a bold attempt to extend the scope of legal advice privilege so that it also protects legal advice (for example, about tax questions) received from professional accountants. It was argued that accountants, rather than lawyers, are the normal first port of call for those seeking advice about their tax liabilities. As the law looks to the quality of advice provided by a lawyer, and not just to his or her status, it should not matter (the reasoning went) whether the legal advice is provided by a lawyer or by another qualified professional. If it is legal advice, then it should be protected.
The Court of Appeal rejected this approach. It confirmed that the status of the lawyer is central to legal advice privilege at common law. The court said that it was bound by precedent to reach this conclusion, but it also thought that such a “potentially controversial” rule – which is an exception to the principle of open evidence – must be highly certain and easily understood. While it is reasonably easy to determine who is (and who is not) a lawyer, opening up the protection of privilege to advice provided by other professionals would render the rule “lamentably uncertain”. Parliament, rather than the courts, was the proper institution to consider whether to expand the scope of the privilege to advice provided by other professionals.
AM&S and Akzo cases
While the Court of Appeal was busy reining in the attempted expansion of legal advice privilege, the Court of Justice of the European Union (the ECJ) made it clear a month earlier that – for the purposes of investigations by the EU competition law authorities – legal professional privilege has a radically narrower scope than it does under domestic English law. Unlike the English legal position, under EU law privilege does not apply to in-house lawyers. This was first established by the ECJ in AM&S v Commission  ECR 1575 and was, on 14 September 2010, confirmed in Akzo Nobel Chemicals Ltd v European Commission (C-550/07 P).
The justification for this restriction of legal professional privilege strikes most English lawyers as unattractive. The ECJ found that an inhouse lawyer does not “enjoy the same degree of independence from [their] employer” as an external lawyer does from a client, so he or she is “less able to deal effectively with any conflicts between [their] professional obligations and the aims of [their] client”. This was said to be the case despite any professional obligation of independence or duty to the court that may apply to an in-house lawyer under national law.
There has been no shortage of cases in recent months testing the boundary between admissible and inadmissible evidence. That so much time and expense has been expended on satellite litigation of this kind demonstrates the importance of what is at stake.
The right to keep evidence private is sometimes fundamental, as is frequently but not always the case with legal advice. But as can be seen by the EU Commission’s accessing in-house solicitors’ confidential legal opinions to their employers, the other party in a dispute will often have a very strong desire to make sure that all the cards are on the table.
- Revised Practice Direction 62 has not changed the law on appeals under section 69 of the Arbitration Act 1996. It is only in exceptional circumstances that documents other than the arbitration award and contract will be admissible in evidence.
- Evidence about the course of without prejudice negotiations is admissible to allow courts to interpret contracts in the context of their surrounding facts.
- If someone claims privilege against selfincrimination, they should be given the benefit of the doubt. But statutory exceptions may apply.
- Even an innocent person may lose their legal advice privilege in documents if they have been used as a mechanism to facilitate fraud.
- Legal advice privilege does not apply to legal advice given by anyone other than lawyers.
- In EU competition proceedings, legal advice given by in-house solicitors will not be protected by legal advice privilege.