A company is not generally entitled to assert privilege against its shareholders, since they have a joint interest in the advice received. This principle does not apply where the advice relates to potential proceedings between the company and the shareholder, since in those circumstances the interests of the company and shareholder are adverse.

A recent High Court decision demonstrates that the principle similarly does not apply where the advice relates to potential litigation against a third party who is alleged to have conspired with a shareholder against the company’s interests, even if the shareholder’s role in the conspiracy was unknown at the time the advice was received: Cadogan v Tolley [2011] EWHC 2286 (Ch).

The decision also illustrates the dangers of referring to privileged witness interviews in interim applications, and contains interesting comments on the privileged status of lawyers’ annotations. 

Background

The claimant group of companies brought proceedings against various defendants including Mr Vivcharyk (its former chief operating officer) and Mr Tolley (its former chief executive officer) alleging that they received bribes or secret commissions in breach of their fiduciary duties. All defendants other than Mr Vivcharyk and a company he owned and controlled (the “Vivcharyk defendants”) either failed to acknowledge service or settled with the claimants.

The Vivcharyk defendants applied for disclosure of notes of the claimant’s interviews of various witnesses. They argued that even if the interviews were initially subject to litigation privilege:

  • Mr Vivcharyk was entitled to see privileged material since he was a shareholder in the first claimant at the time the interviews were conducted; and
  • any privilege had been waived as a result of the claimants’ reliance on the contents of the interviews in its applications for freezing injunctions.

Shareholder’s entitlement to see privileged materials

The judge (Newey J) held that Mr Vivcharyk was not entitled to see the interview notes as a former shareholder.

It did not matter that the litigation contemplated at the time of the interviews was against Mr Tolley and not Mr Vivcharyk. The claimant’s case was that Mr Tolley and Mr Vivcharyk were co-conspirators. Although the judge was not referred to any authority that precisely covered the situation, it must be right that a company is entitled to maintain privilege against a shareholder in respect of advice received in respect of potential claims against a co-conspirator of the shareholder, even if the shareholder had up to that point succeeded in concealing his role.

Waiver of privilege

However, privilege had been waived in the interview notes as a result of the applications for the freezing injunctions. The claimants’ solicitor had sworn an affidavit in support of the applications which referred in some detail to the content of the interviews and claimed to provide “distillations” of the accounts of a number of the interviewees. Fairness required that what the interviewees said was disclosed in full, to ensure that the claimants had not “cherry-picked”.

It did not matter that the claimants had not put in evidence or relied on the interview notes themselves. The privileged communications were the interviews, and once privilege in those interviews had been waived the interview notes were disclosable.

(A similar decision was reached in Berezovsky v Abramovich [2011] EWHC 1143 (Comm), where it was held that privilege had been waived in witness interviews where a party had relied on their contents in a witness statement and skeleton argument filed in defence of a summary judgment application – read more here.)

Privilege in lawyers’ annotations?

The judge commented however that if the notes contained the note-taker’s own thoughts or comments, “either in words or by means of underlining, ringing or symbols” his provisional view was that the claimants should be able to withhold these.

This is an interesting contrast with the court’s approach in Imerman v Tchenguiz [2009] EWHC 2902, in which Eady J did not accept that underlining or highlighting documents would, in itself, give rise to legal professional privilege. Such markings would only be privileged if they would “give a clue” to the trend of advice being given by the lawyers (see Lyell v Kennedy (No 3) (1884) 27 Ch.D 1, 26 per Cotton LJ). Eady J said there are all sorts of reasons why lawyers might underline or highlight a document and, save in very specific circumstances, one would not be able to draw any inference as to the trend of advice. (See our e-bulletin of 29 January 2010.)