A recent High Court decision demonstrates the court’s strict approach in analysing the purpose for which a report was prepared in order to determine whether a claim for litigation privilege is available: Tchenguiz & anor v Rawlinson and Hunter Trustees SA & ors  EWHC 2297 (QB).
It is well established that the fact a document is produced for the purpose of pending or contemplated litigation is not sufficient to found a claim for litigation privilege. The privilege will apply only if that purpose can properly be characterised as the “dominant purpose”; if it is merely one of a number of purposes of equal importance, a claim for litigation privilege will fail.
Although each case will turn on its facts, the present decision suggests that liquidators may face particular difficulties in asserting privilege where reports are obtained in part to allow them to perform their statutory duties as to the orderly collection of assets and settlement of liabilities and in part for use in legal proceedings.
This highlights the need to consider carefully, at the stage a report is being commissioned, the purpose(s) of the report and whether (or not) privilege is likely to apply. If in doubt, the safest course is to assume that the report will not be covered by privilege.
Litigation privilege applies where, at the time a communication or document was created: (i) litigation was in reasonable prospect; and (ii) the communication or document was created for the dominant purpose of that litigation. (See our Handy client guide to privilege and our more detailed notes on the reasonable prospect and dominant purpose aspects of the test.)
In this case the claimants had brought proceedings against the SFO seeking damages of approximately £300 million in respect of the SFO’s allegedly unlawful raids on the claimants’ premises and associated arrests and investigations.
The claimants applied under CPR 31.17 for third party disclosure from the liquidators of a separate company (the “Liquidators”). In particular, they sought disclosure of five specific documents (the “Reports”) which had been prepared by a firm of accountants on the instructions of the Liquidators who were also partners/directors of the accountants.
The Reports had been shown to the SFO by the accountants. The SFO had not been permitted to copy the Reports, but had taken detailed notes of them. These notes had been exhibited to a witness statement adduced in evidence by the SFO in open court during a Judicial Review hearing, had been referred to extensively both in argument and in the court’s judgment, and the court had made a specific order that the exhibits including these notes were in the “public domain”.
The Liquidators opposed the application for disclosure, including on grounds that the Reports were covered by litigation privilege. The claimants contested this assertion, and also argued that if litigation privilege had applied to the Reports initially, that privilege had been lost by virtue of the fact that the Reports (or at least the information contained in them) were now in the public domain.
The judge (Eder J) held that none of the Reports were subject to litigation privilege.
The judge emphasised that the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found a claim for litigation privilege. It is only if that can properly be characterised as the “dominant purpose” of the document’s creation that litigation privilege will apply. This is well established.
The judge noted that, inevitably, difficulties arise where documents are produced for a dual purpose. Such difficulties may be particularly acute where documents come into existence on the instructions of liquidators who are under statutory duties as to the orderly collection of assets and settlement of liabilities:
“In the first instance at least, the proper performance of such duties may require the liquidators to obtain information simply to identify what (if any) assets or liabilities exist or perhaps what legal proceedings might possibly be brought against any third parties. Ultimately, once obtained, such information may well be important to enable liquidators to decide what if any legal proceedings might possibly be pursued; and, further down the line, such information may in fact be used for or in connection with pending or contemplated litigation or of conducting or aiding in the conduct of such litigation. However, unless such documents were originally produced for the “dominant purpose” as stated above, they cannot, in my view, be the subject of a proper claim for litigation privilege.”
The judge noted that the evidence in support of the Liquidators’ claim to privilege was in the form of a witness statement by the Liquidators’ solicitor, who had not been involved in producing the Reports nor in giving instructions to produce them. That was not necessarily fatal; there was no reason in principle why a party’s solicitor (who was an officer of the court) should not give evidence as to the provenance and purpose for which a document was produced on information and belief. However, if that was done, it was entirely proper to subject such evidence to “anxious scrutiny”.
He then proceeded to analyse the evidence regarding each of the Reports in great detail. Factors cited in support of his conclusion that the test for litigation privilege was not satisfied included the following:
- One Report was said to have been prepared to enable the Liquidators and their legal advisors “to respond to varying scenarios and to prepare a Defence and Counterclaim”. The judge described the reference to responding to “varying scenarios” as “somewhat equivocal” and said the use of the conjunctive “and” suggested a dual purpose.
- A later statement that this Report “was to identify all inter-company balances that should be reversed and to calculate the effect of these balances/reversals on dividends to creditors” was, the judge said, difficult to reconcile with the earlier statement. Further, this exercise was one which the Liquidators were bound to carry out in any event and was independent of the possible need to take recovery proceedings.
- Another Report was said to have been commissioned for the dominant purpose of enabling the Liquidators to consider with Counsel the “broader implications” of the Guernsey proceedings for the companies. The judge said this was ”somewhat vague”. If it referred to the financial consequences of the various possible outcomes the judge said he was “extremely doubtful” that this would give rise to litigation privilege.
- In relation to a statement that this Report enabled the Liquidators’ solicitors to “understand the accounting treatment of the loan transactions to enable them to advise on strategy for the litigation”, the judge said that if the Report was necessary for the solicitors to understand the accounting treatment of the loan transactions, it was difficult to see how the dominant purpose test was satisfied even if this was to enable the solicitors to advise on strategy for the litigation.
- Another Report was said to address various transactions which the Liquidators considered unusual or irregular and identify “potential causes of action as well as the defendants to possible claims”. The judge said that such language – in particular the reference to “potential” causes of action and “possible claims” – seemed to fall far short of the necessary threshold. The fact that it was provided to the legal advisors does not mean that litigation was “reasonably in prospect” rather than a mere possibility at that stage.
- Another Report was commissioned following a specific request by the Liquidators’ counsel for a document providing certain details, and was provided to counsel shortly thereafter ”for the purposes of obtaining advice and formulating draft particulars of claim”. Again, however, the judge thought this fell short of establishing that there was any relevant litigation which was “reasonably in prospect” as opposed to a mere possibility. This conclusion was fortified by the fact that some 2½ years later, no litigation has been instituted.
The judge’s conclusions on litigation privilege meant that it was not necessary to determine whether privilege had been lost as a result of a loss of confidentiality in the Reports. However, the judge considered the issue, obiter, and concluded that if the documents had been subject to litigation privilege, that privilege would not have been lost. Even if the Reports had been “substantially reproduced” in the notes exhibited to the SFO’s evidence, the only relevant loss of confidentiality was in respect of the information actually set out in those notes – no more, no less. The Reports themselves were not in the public domain. The position might have been different if the point had been argued as a case of waiver of privilege by the person entitled to assert it; here there was some dispute as to whether the SFO had authority to disclose information from the Reports. Accordingly the claimants had argued the point simply on the basis of a loss of confidentiality.
In some previous cases, the courts have been prepared to find that what looked like separate purposes were in fact parts of a single, overarching purpose relating to the litigation. The leading authority on this point is Re Highgrade Traders Ltd  BCLC 151 (CA), in which insurers commissioned reports into the cause of a fire which destroyed the insured’s business. At first instance, the court rejected a claim for litigation privilege on the basis of a duality of purpose, i.e. the insurers wanted to ascertain the cause of the fire as well as obtaining the advice of their solicitors. The Court of Appeal overturned the decision on the basis that these purposes were ”quite inseparable”. The insurers were not seeking the cause of the fire as a matter of academic interest, but to determine whether (as they suspected) it had been fraudulently started by the insured.
Here Eder J referred to the decision in Price Waterhouse v BCCI Holdings (Luxembourg) SA  BCLC 583, which he said was particularly relevant in the present context. In that case the court held that documents had been prepared in order to establish BCCI’s financial position and to decide whether recovery proceedings should be taken. But, the court said, the two purposes were quite independent of each other. Therefore, the documents did not attract privilege.
Eder J said this decision was important in illustrating the ”relatively high threshold” imposed by the dominant purpose test. Although each case turned on its facts, it showed that if, for example, documents are produced to determine the extent to which “problem loans” are recoverable in order to establish the financial position of a company, such exercise is quite independent of the possible need to take recovery proceedings and will not (at least on that basis) attract litigation privilege.