No litigation privilege unless the communication is for the purpose of obtaining information or advice

In this significant case (WH Holding Limited (1) and West Ham United Football Club Limited -v- E20 Stadium LLP [2018] EWCA Civ 2652), the Court of Appeal considered the scope of litigation privilege. In a surprise to many, it found that litigation privilege will not apply to communications created with the dominant purpose of discussing a commercial settlement of the dispute. It is not enough that discussion of commercial settlement falls within the ambit of ‘conduct of the litigation’, the relevant communications must be for the purpose of obtaining information or advice in connection with the conduct of the litigation.

The appeal arose from West Ham’s application for the court to inspect a number of documents in relation to which privilege had been asserted. At first instance the High Court dismissed West Ham’s application, and E20’s claim for privilege over the redacted documents was upheld.

Permission was given to appeal on the following main grounds: (i) whether the scope of litigation privilege is restricted to documents concerned with obtaining advice or evidence for the conduct of litigation; (ii) the correct approach to be taken by a court to an application for inspection of documents by the court where a claim for privilege is challenged.

The disputed documents at the centre of the appeal included six e-mails passing between E20’s board members, and between the board members and stakeholders. E20 asserted that each of the e-mails were composed with the dominant purpose of discussing a commercial proposal for the settlement of the dispute between E20 and West Ham at a time when litigation was in reasonable contemplation. The question was: did litigation privilege apply to them?

Appeal ground 1 – scope of litigation privilege

It was common ground between the parties that litigation privilege relates to documents brought into existence for the purpose of the conduct of litigation, and passing between client, lawyer, agent or third party.

The question for the Court of Appeal, however, was whether litigation privilege extends to documents which are concerned with the settlement or avoidance of litigation where the documents neither seek advice or information for the purpose of conducting litigation.

West Ham submitted that only documents concerned with obtaining advice or evidence for use in litigation could attract litigation privilege because only those documents could be said to relate to ‘conducting’ the litigation. Relying on SFO -v- Eurasian Natural Resouces Corporation Ltd [2018] EWCA Civ 2006, Norris J at first instance did not accept that narrow formulation. In ENRC the Court of Appeal found that legal advice given to head off, avoid or settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of defending those proceedings, and documents prepared for the purpose of settling or avoiding a claim are created for the purpose of defending litigation.

The Court of Appeal disagreed with E20 that ENRC removed the requirement that a document must be concerned with obtaining advice or evidence, and that it was sufficient if the document were simply created for the dominant purpose of conducting litigation. ENRC did however repeat and make clear that obtaining advice or evidence to avoid or settle litigation was included within the privilege in the same way that obtaining advice or evidence for pursuing or defending litigation was included.

The Court of Appeal referred to Lord Carswell’s summary of the scope of litigation privilege in Three Rivers DC -v- Governor and Company of the Bank of England (No 6) [2004] UKHL 48:

‘…communications between parties or their solicitors and third parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not inquisitive or inquisitorial.’

It was already established in case law that deciding ‘whether’ to defend or prosecute an action must include a decision to head it off by compromise. The mistake in E20’s argument, according to the Court of Appeal, was to treat sub-paragraph (b) as being an extension of Lord Carswell’s general proposition. The principle itself is that the communication must be made ‘for the [sole or dominant] purpose of obtaining information or advice in connection with existing or contemplated litigation’. The requirement that it must be for the sole or dominant purpose of conducting litigation is a restriction of that principle, not an extension.

In the present case, the sole ground upon which privilege was claimed was that the documents were created with the dominant purpose of discussing a commercial settlement of the dispute when litigation with West Ham was in contemplation. The Court of Appeal did not accept that a claim in those terms fell within the scope of litigation privilege.

The Court did accept that a document in which advice or information obtained for the dominant purpose of conducting litigation cannot be disentangled, or a document which would otherwise reveal the nature of such advice or litigation, would itself be covered by litigation privilege.

E20 also submitted that there was privilege for internal communications within a corporate body. The Court of Appeal commented that at one stage it was commonly thought that confidential documents need not be disclosed; but that is no longer the law. The Court of Appeal could see no justification for covering all internal corporate communications with a blanket of litigation privilege.

In summary, the Court of Appeal concluded as follows:

  1. Litigation privilege is engaged when litigation is in reasonable contemplation
  2. Once litigation privilege is engaged it covers communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation, provided it is for the sole or dominant purpose of the conduct of the litigation
  3. Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation
  4. Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege
  5. There is no separate head of privilege which covers internal communications falling outside the ambit of litigation privilege as described above

Appeal ground 2 - inspection

In light of the Court’s finding on the first ground of appeal, it was not strictly necessary to consider the other g rounds of appeal. However, the Court did so. As to inspection, the question was: what is the appropriate test for deciding when a court should inspect documents to ascertain whether they are privileged and did the judge apply the correct test properly?

The Court of Appeal found that the court may inspect documents in relation to which privilege is claimed in order to see whether the test has been correctly applied. The discretion must be exercised in accordance with the overriding objective, which requires balancing dealing with cases justly, proportionately and at proportionate cost and allocating an appropriate share of the court’s resources. Relevant factors to the exercise of discretion include (a) the nature of the privilege claimed (b) the number of documents involved and (c) their potential relevance to the issues.

Comments

The decision highlights that a key component of the test for litigation privilege is that the communications must be for the purpose of obtaining information or advice in connection with the conduct of the litigation.

Where litigation is in contemplation or already underway, parties should be very wary about what they put in correspondence, both to third parties and internally. Parties to litigation may previously have thought that internal settlement discussions were obviously for the dominant purpose of conducting the litigation and therefore privileged. However, West Ham -v- E20 makes it clear that this is not the full extent of the test. Without the communications being for the purpose of obtaining information or advice in connection with the conduct of the litigation then they will not benefit from litigation privilege.

The case is also significant because the Court of Appeal addresses purely internal communications, for example, between members of a company’s board. The Court of Appeal commented that there is no justification for covering all internal corporate communications with a blanket of litigation privilege. The communication must be between a party and/or his lawyer and a third party for litigation privilege to apply.

Where a party wishes to discuss settlement internally without (or with less) risk of the communication becoming disclosable, they may wish to consider addressing the relevant communication to their lawyer and seeking legal advice on the settlement within the communication. Such a communication would likely benefit from legal advice privilege.