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Litigation privilege: Particularly nuanced protection

Walker Morris’ Head of Commercial Dispute Resolution Gwendoline Davies highlights two recent cases which demonstrate that whether or not a party can withhold documents on the basis of litigation privilege remains a very nuanced question.

The ability to withhold documents from disclosure to the court and/or other parties, without adverse inferences being drawn, is a fundamental and vital protection within the law of England and Wales.

We were pleased to report, in September 2018, that the Court of Appeal had, in the SFO v ENRC case, reinstated the law so that documents prepared prior to court proceedings, and discussions and documents prepared in connection with the avoidance or settlement of litigation, could attract ‘litigation privilege’ – something which the High Court’s earlier decision in that litigation had threatened.  The Court of Appeal’s decision was lauded amongst corporate clients and across the legal profession for its message that companies should not be discouraged from dealing responsibly and proactively with investigations and allegations for fear of their factual findings becoming disclosable.

However, as two even more recent cases demonstrate, whether or not a party can withhold documents on the basis of litigation privilege remains a very nuanced question, and one that is fraught with traps for the unwary.

Sotheby’s case: Dual purpose prevents privilege

Sotheby’s had undertaken, in a contract to sell a painting said to be by a 17th century Dutch painter, to refund the purchase price if the painting was subsequently determining to be a fake. When allegations that the painting was a counterfeit were made, Sotheby’s instructed experts to advise on authenticity and instructed external lawyers on the basis that litigation was a real possibility.  When the painting was discovered to be a fake, Sotheby’s refunded the buyer and sued the seller to recover its loss.  The defendant/seller sought inspection of correspondence between Sotheby’s and the experts leading up to and following production of their reports, and Sotheby’s claimed litigation privilege.

Litigation privilege covers confidential communications between a lawyer and client, or between either of those and a third party (such as an expert adviser), so long as litigation is anticipated or ongoing and the dominant purpose for the communication is its use in litigation. There was no doubt in this case that litigation was anticipated when Sotheby’s correspondence was created, but the seller argued that its dominant purpose was not its use in the conduct, settlement or avoidance of litigation, but rather to determine what Sotheby’s needed to do to fulfil its contractual obligations to the buyer.

The High Court decided that the decision whether to refund the buyer and the need to strategise for potential litigation were of equal importance to Sotheby’s, such that it could not pass the dominant purpose test.  The documents therefore had to be disclosed.

The Sotheby’s case is a harsh reminder of the existence and strict application of the dominant purpose test.  Where use in strategising or preparation for; conduct of; or settlement or avoidance of, litigation is the main motivator for the production of a document, then litigation privilege may apply.  Where, however, factual investigations are independently or also required, there is a risk that documents may be disclosable.

West Ham v E20 Stadium case: Consider what amounts to ‘conducting litigation’

In accordance with SFO v ENRC, the concept of ‘conducting litigation’ includes deciding whether or not to settle.  This case confirms, however, that deciding whether or not to settle is one thing; whereas purely commercial discussions as to potential settlement options are something else.  The former will be covered by litigation privilege; the latter probably not.

That is a very delicate, but crucial distinction, which may frequently be difficult to discern in practice in the commercial world. This area is likely to be the source of future litigation.

Practical advice

For more information and lots of practical advice about litigation privilege and legal professional privilege more generally – including how privilege arises and how to protect it – please see our more detailed earlier briefing on legal advice privilege and the privilege chapter from our upcoming Little Green Book of Dispute Resolution.