Documents created during an internal corporate investigation were protected by litigation privilege. Although the documents, including an internal investigation report, were also used during an employee disciplinary process, the dominant purpose of the documents was to investigate complaints (and threats of litigation) from a client. However, litigation privilege in the internal investigation report had been waived because the company (employer) had provided it to one employee, without any limitations, during disciplinary proceedings. During subsequent litigation, that employee had disclosed the report to a co-defendant thus privilege was lost as against that other defendant. The ruling provides a cautionary tale about why it is important for any party disclosing a privileged document to be very careful about the terms of the waiver: FM Capital Partners Ltd v Marino & ors  EWHC 3700 (Comm), 15 December 2017
This was a dispute between an asset manager (the claimant) and its former CEO Mr Marino (the first defendant) and others in relation to Mr Marino’s alleged breaches of duties to the claimant by taking unlawful commissions from investments made on behalf of one of the claimant’s clients (a Libyan sovereign wealth fund , Libya Africa Investment Portfolio (LAP)). The third defendant, Yoshiki Ohmura (a former banker alleged to have dishonestly assisted Mr Marino), applied for specific disclosure of documents created in the course of an internal investigation carried out by BDO, for the claimant, into Mr Marino’s conduct.
Dominant purpose of the investigation report
The third defendant’s first basis for seeking disclosure of documents relating to BDO’s investigation was that they were not covered by litigation privilege, because preparing for litigation was not the ‘dominant purpose’ of the investigation.
BDO were appointed by the claimant’s solicitors in 2014 to investigate Mr Marino’s conduct, following a series of complaints made by LAP. The claimant argued that the dominant purpose of the BDO investigation was to ascertain its liabilities in potential litigation; and therefore materials created as part of that investigation were subject to litigation privilege. When BDO were instructed, litigation was seriously contemplated, as correspondence from LAP expressly threatened proceedings against the claimant, and the allegations about Mr Marino’s conduct made it likely that the claimant may want to bring proceedings against Mr Marino too (as indeed happened).
The third defendant argued that a disciplinary process against Mr Marino was at least an equal purpose of the BDO investigation. The court disagreed, and found that it was “inherently less likely that a company faced with serious allegations and a serious potential claim against it from one of its clients would be predominately or even equally concerned with disciplining its own employee”.
Waiver of privilege by disclosure to one party to the proceedings
Having failed to establish that the BDO investigation materials were not subject to litigation privilege, the third defendant sought disclosure of one particular document – BDO’s investigation report – on the alternative basis that by providing that report to Mr Marino as part of his disciplinary process, the claimant had waived privilege over it in the context of the litigation.
The court considered previous case law which found that disclosing a privileged document for the purpose of one proceeding did not necessarily mean privilege had been waived so far as other related proceedings were concerned.1 The question of waiver depends on whether there is “an express or implied restriction on the subsequent use of the document”.
In this case, the BDO report was provided to Mr Marino during the disciplinary process with no express limitations on his use of the document, and the court refused to infer any such limitation. Mr Marino was therefore entitled to use the document as part of his own disclosure in these proceedings and, Mr Marino having disclosed the document in these proceedings, privilege had been lost as against the other parties to these proceedings.
The decision that litigation privilege should apply to these documents was uncontroversial, given that the claimant was already in receipt of a letter raising complaints that had the potential to give rise to litigation.
The more significant point in this decision is the importance of carefully managing litigation risks in an employment context. Litigation frequently runs side by side with internal disciplinary processes, as facts emerge about employees during the course of investigating the facts pertaining to a dispute. This decision highlights the importance of keeping disclosure and loss of privilege risks in mind when deciding what documents to create, and whether and how to share those documents with an employee who may be or become a defendant in the litigation.
Close cooperation between internal employment and litigation teams in these situations is vital to protect the company's interests.