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Why are you creating that pre-action document? More on Litigation Privilege (especially if you are a liquidator!)

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18/03/2014

Since the Starbev [1] decision, the Court of Appeal have had the opportunity to review litigation privilege again in the appeal of the decision in Tchenguiz v Director of the Serious Fraud Office (SFO) [2]. In dismissing the appeal [3] [4], and finding that no litigation privilege attached to the five reports in question, the court emphasised that documents must meet the dominant purpose test if they are to be covered by litigation privilege.

What is litigation privilege? Just to recap, a document which has the benefit of litigation privilege is protected from an opponent’s inspection. To gain that benefit, a document must be a confidential communication between a lawyer and a third party or a client and a third party, created when litigation was reasonably contemplated or underway and made for the dominant purpose of obtaining advice or information about that litigation.

The facts behind the Tchenguiz litigation are quite complex. Suffice to say that two brothers (the Tchenguiz) required inspection of five reports held by third parties (the liquidators) to assist their claim against the SFO for damages.

The Tchenguiz had applied under CPR rule 31.17 for third party disclosure against the liquidators. The liquidators resisted the application arguing that the reports were protected by litigation privilege and had been prepared for the dominant purpose of litigation. The High Court, having agreed that the reports were relevant to the Claimant’s claims, decided the reports were not privileged and ordered their disclosure. The liquidators’ appeal of that decision was dismissed by the Court of Appeal: in order to gain the benefit of litigation privilege, confidential documents must have been produced for the dominant purpose of the seeking advice, information or evidence on reasonably anticipated litigation. The liquidators had failed to establish that dominant purpose.

In this case, the dominant purpose test was complicated by the fact that the liquidators were carrying out their roles as liquidators as well as assisting in the preparation for litigation. Their statutory duty as liquidators was to establish what assets existed, how they could be collected and how the liabilities could be reduced or discharged. The reports therefore had a dual function: they were needed to help the liquidators fulfil their roles in the liquidation – but they were also needed to obtain advice, information and evidence about potential litigation.

Unfortunately, the evidence provided on behalf of the liquidators referred to two or more reasons for each of the reports being prepared, didn’t state clearly which was the dominant reason (and why) and failed to prove that seeking advice/information for the litigation was the dominant purpose. Consequently, no privilege attached to the documents. Further in the case of some of the reports, it wasn’t proved that litigation was reasonably in prospect at the time of their creation.

Issues to consider when claiming litigation privilege

  • Following this Court of Appeal case, the essential question remains: does the confidential document or class of documents over which litigation privilege is claimed satisfy the ‘dominant purpose’ test? Was it prepared for the dominant purpose of seeking information or advice about reasonably contemplated litigation? (It need not have been the only reason.)
  • Keep good records: if there are two or more reasons for creating a document, the court will very carefully analyse the evidence to ascertain the dominant purpose for its production.
  • A claim to privilege will not be helped if litigation proceedings are not issued in timely fashion after the preparation of the documents. If there is a delay – record why so that you can explain later.
  • Sending a document to counsel will not on its own prove litigation was a dominant purpose for the document’s creation. It’s the reason for creation which is the key to ascertaining the dominant purpose – and not what you do with the document afterwards.

There are important issues here for liquidators
Don’t assume that everything a liquidator does is in contemplation of anticipated litigation and will be privileged. The court will look carefully at each document produced to ascertain the dominant purpose.

From their very appointment, liquidators should therefore think about what documents are needed and why. If there’s more than one purpose behind the creation of a document and the protection of litigation privilege is needed, ask: could it be proved that seeking advice, evidence or information in contemplation of litigation was the dominant purpose? Without adequate evidence, liquidators could be opening themselves up to a disclosure order in future proceedings.

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[1] Link to WM Starbev article
[2] Tchenguiz v Director of the SFO [2013] EWHC 2297 (QB)
[3] Rawlinson and Hunter Trustees SA and others v Akers and another [2014] EWCA Civ 136
[4] http://www.bailii.org/ew/cases/EWCA/Civ/2014/136.html

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