Court of Appeal refuses litigation privilege for commercial settlement discussions

The Court of Appeal has provided further clarification regarding the scope of litigation privilege. In what was the first televised appeal in the Court of Appeal, the court considered whether privilege can be claimed over internal client communications that discussed a commercial proposal for settlement of the dispute (WH Holding Ltd v E20 Stadium LLP (No. 2) [2018] EWCA Civ 2652). It was held that those communications were not covered by litigation privilege. This decision will only fuel calls for a Supreme Court review of the scope and nature of the different forms of legal professional privilege. In the meantime, it signals the need for careful co-ordination of communications where a business creates internal documents concerning its proposals for settlement.

Background

The case relates to West Ham Football Club's dispute with its landlord, E20, over the number of seats West Ham is entitled to use at the former Olympic stadium. West Ham challenged E20's claim to privilege over six emails between Board members of E20, and between E20 Board members and stakeholders discussing potential commercial settlement terms for the dispute. There was no suggestion that these emails either referred to legal advice or were prepared in order to obtain information or advice for the purpose of the litigation. E20 had asserted litigation privilege on the basis that the emails were prepared with the dominant purpose of discussing a commercial settlement of the dispute at a time when litigation was in reasonable contemplation. There was no dispute that litigation was in reasonable contemplation at the time. West Ham contended that the documents could not fall within the scope of litigation privilege unless they were concerned with obtaining information or advice for use in the litigation, which was clearly not the case. They requested an order that the judge inspect the documents to determine whether they should be made available to West Ham in the proceedings.

Decision at first instance

The two issues for determination by the court were: (1) whether the documents were protected by litigation privilege, given the basis of that claim to privilege; and (2) whether the court should itself review the documents to decide whether they should be made available to the other party.

As to the first issue, Norris J refused West Ham’s application. Relying upon the recent decision in SFO v ENRC [2018] EWCA Civ 2006, he held that litigation privilege extended to documents concerned with the settlement or avoidance of litigation, even where those documents did not seek advice or information for the purposes of conducting litigation.

Following guidance laid out in West London Pipeline and Storage Ltd v Total UK [2008] 2 CLC 258, Norris J also held that he could only inspect the documents if he was reasonably certain that the test for privilege had been wrongly applied by E20’s solicitors. Since he was not, he found no basis for their inspection.

Permission to appeal was granted on various grounds, including:

1. whether the scope of litigation privilege is restricted to documents concerned with obtaining advice or evidence for the conduct of litigation; and
2. the correct approach to be taken by a court towards the inspection of documents.

Decision of the Court of Appeal

The Court of Appeal unanimously allowed West Ham’s appeal.

(i) Scope of litigation privilege

The Court of Appeal noted that SFO v ENRC did not expand the scope of litigation privilege to encompass documents which neither sought advice nor information for the purpose of conducting litigation (or its avoidance or compromise). The court rejected E20’s argument that “conducting litigation” encompassed internal discussions as to a commercial settlement of that litigation.

While a document in which commercial discussions could not be disentangled from advice or information obtained for the sole or dominant purpose of conducting litigation would be covered by litigation privilege, as would a document which would otherwise reveal the nature of such advice or information, there was no justification for extending the scope of litigation privilege to internal corporate communications discussing a commercial settlement.

The court also rejected E20's suggestion that internal communications within a company which are made for the dominant purpose of conducting litigation were necessarily privileged, overruling the earlier decision of Mayor and Corporation of Bristol v Cox (1884) 26 Ch D 678.

To fall within litigation privilege, a communication must therefore be prepared for the dominant purpose of obtaining advice or information (e.g. for use as evidence) in relation to the conduct of litigation. It is not sufficient that the document was for the dominant purpose of conducting litigation in a broader sense.

(ii) Court inspection

Given the finding above, the court's observations on the appropriate test for deciding when a court should inspect documents to ascertain whether they are privileged were obiter. However, it is noteworthy that the Court of Appeal disagreed with the narrow formulation set out in West London Pipeline and the need for there to be a reasonable certainty that a claim to privilege had been misapplied. Instead, the Court of Appeal described the court's power to inspect a document as “a matter of general discretion”. That discretion should be exercised in accordance with the overriding objective, which required the court to balance dealing with cases justly, proportionately and at proportionate cost and allocating an appropriate share of the court’s resources. Among the factors the court should take into account were:

1. the nature of the privilege claimed;
2. the number of documents involved; and
3. their potential relevance to the issues.

This position is consistent with the position under the new Practice Direction in force from 1 January 2019 for the purposes of the disclosure pilot scheme in the Business and Property Courts, which provides that “the court may inspect the document or samples of the class of documents if that is necessary to determine whether the claimed right or duty exists or the scope of that right or duty”. There is no threshold requirement for the court to conclude that the test has been misapplied.

Comment

The Court of Appeal provided the following useful summary of the scope of litigation privilege:

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 sole or dominant purpose of obtaining information or advice in connection with 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.

This case provides an important reminder that parties have a continuing obligation of disclosure throughout proceedings and that documents created during the course of proceedings may be disclosable if they do not fall within the scope of legal professional privilege. It is also a reminder that internal corporate documents, even if created because of litigation, will not be privileged unless they fall within the narrow confines of privilege.

Settlement proposals and discussions are obviously highly sensitive documents that a party would not wish to have to disclose to the other side or anyone else. In many disputes, this would not be an issue, as internal documents considering a commercial settlement proposal would not be disclosable at all, because they would not be relevant to any issue in the proceedings or may consider proposals in light of legal advice which was itself set out in the document. The judgment in this case does not make it clear why the emails were considered disclosable in the first place, i.e. why they were relevant to any issue in the proceedings. There is some suggestion in the judgment that the emails concerned E20’s litigation strategy, which in many cases would not have any direct bearing on the court’s approach to the legal or factual issues in the proceedings.

This was not a case which turned on the discredited narrow scope of “client” following Three Rivers No. 6 [2015] UKHL 48, as this was not a case concerning the more limited scope of legal advice privilege. However, it is important to note that legal advice privilege would extend to advice as to what should sensibly be done in a relevant legal context, which could cover certain requests for, and provision of, advice on settlement strategy. Had E20 in this case structured the relevant communications in such a way that they were either to or from legal advisers seeking or obtaining legal advice or were identifying potential settlement proposals on the basis of (i) the weight of evidence or (ii) specific legal advice that was referenced in the emails themselves, they may have been protected by privilege.

While arguably not a case that changes the scope of legal professional privilege, this case, along with the case of SFO v ENRC and, more recently, Sotheby’s v Mark Weiss [2018] EWHC 3179 (Comm), which drew a similar distinction between documents created for commercial and legal purposes in relation to litigation, highlight the increasingly unclear nature and scope of legal professional privilege. It is noteworthy that the judgment in the Sotheby’s case was published four days before the West Ham judgment (although the parties in West Ham were told the outcome eight days before the Sotheby’s judgment). In Sotheby’s, the Judge referred to the West London Pipeline judgment with approval in considering a claim to litigation privilege over certain expert reports, yet that case was discredited by the Court of Appeal in West Ham. The sooner the Supreme Court reviews and determines both legal advice privilege and litigation privilege determinatively for the modern age, the better.