Internal communications regarding commercial settlement of dispute not protected by litigation privilege

The issue arose in the context of an underlying dispute between West Ham United Football Club (West Ham) and its landlord (E20) regarding the number of seats West Ham was eligible to use at the London Olympic Stadium for its home matches. The privilege dispute centred on just six emails sent between E20 board members and between E20 board members and stakeholders “composed with the dominant purpose of discussing a commercial proposal for the settlement of the dispute…at a time when litigation was in contemplation.” E20 claimed litigation privilege over these emails.

West Ham challenged this claim to privilege and applied for the court to inspect the emails to determine whether the claim to privilege had been correctly made. It argued that litigation privilege can only ever apply to communications made for the dominant purpose of obtaining advice or evidence (including information which may lead to evidence) for the conduct of litigation.

West Ham argued that given these emails (by E20’s own admission) were made for the dominant purpose of discussing a commercial settlement proposal, rather than obtaining advice or evidence for the conduct of litigation, they could not be covered by litigation privilege.

E20 disagreed. It submitted that to be covered by litigation privilege the communication merely needed to be for the dominant purpose of “conducting litigation” and that included not just advice and evidence gathering for the litigation, but also internal discussions to formulate a purely commercial settlement proposal. E20 said this position followed the recent ruling of the Court of Appeal in SFO v ENRC [2018] EWCA (Civ) 2652  that the conduct of litigation included avoiding or compromising litigation.

E20 also argued that, in any event, all internal communications within a corporation made for the dominant purpose of conducting litigation are subject to privilege (following the 19th century ruling in Bristol v Cox (1884) 26 Ch D 678).

Court of Appeal disallows privilege claim

The Court of Appeal agreed with West Ham (overruling the first instance decision).

Obtaining information or advice in connection with litigation

For litigation privilege to apply the communication must be made for the dominant purpose of “obtaining information or advice” in connection with litigation. The Court of Appeal endorsed Lord Carswell’s formulation of the scope of litigation privilege in Three Rivers 6 UKHL 48. That test starts with the general proposition that litigation privilege only applies where the communications are made “for the purpose of obtaining information or advice” in connection with litigation (emphasis added):

“…communications between 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 are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been for the sole or dominant purpose of conducting that litigation; (c) that litigation must be adversarial, not investigative or inquisitorial”.

The Court of Appeal said that the mistake E20 made was to the treat the restriction at (b) (ie that the communication must be for the sole or dominant purpose of conducting litigation) as being an extension of the general proposition rather than a restriction on the width of that principle.

The Court of Appeal said that the SFO v ENRC ruling that the “conduct of litigation” encompassed avoiding or settling litigation was not authority for extending the scope of litigation privilege to internal client communications discussing commercial settlement proposals. The only possible change attributable to that case was confirmation that the conduct of litigation includes its avoidance or compromise. It did not affect the general proposition. In any event, all the disputed documents in that case satisfied the general proposition.

The Court of Appeal noted that it might still be possible to claim litigation privilege over a communication that did not satisfy the general proposition where it could not be “disentangled” from a communication covered by litigation privilege or “would otherwise reveal” the content of the privileged material. It also noted that a document not covered by litigation privilege may still be covered by legal advice privilege.

Internal corporate communications

The Court of Appeal gave short shrift to E20’s remaining argument that all internal confidential corporate communications within a corporation made for the dominant purpose of conducting litigation are covered by litigation privilege (in order that the corporation can consider its position and act). The court held that there is no separate head of privilege which covers internal corporate communications falling outside the ambit of litigation privilege described above. Bristol v Cox was wrong on this point.

Inspection by the court

Given its ruling on the scope of litigation, the Court of Appeal did not need to rule on the question of when a court should inspect documents to ascertain whether a claim to privilege had been correctly made. However, its obiter remarks are worth noting as they show the court may take a more interventionist approach to inspection in the right circumstances.

The Court of Appeal said the court’s power to inspect is “a matter of general discretion”. It is not limited to cases in which (without sight of the documents in question) the court is “reasonably certain” that the test has been misapplied (in contrast to the ruling at first instance and the narrow formulation set out by Beatson J in West London Pipeline v Total [2008] 2 CLC 258).

The Court of Appeal, however, also noted that this general discretion should be exercised cautiously. The court should be alive to the dangers of looking at the documents out of context and must act in accordance with the overriding objective of dealing with cases justly and proportionately. Inspection may possibly be a bit easier to obtain but the floodgates are by no means opened.

Comment

This judgment is one in a recent flurry of rulings on privilege. It pulls back any suggestion that there has been a fundamental reformulation of the test for litigation privilege following SFO v ENRC. The Court of Appeal is clear that for litigation privilege to apply there is no escaping the need for the communication to be primarily for the purpose of obtaining information or advice in connection with the conduct of litigation (which, following SFO v ENRC, now clearly includes the avoidance or compromise of litigation).

The spotlight is yet again put on the difficulties of claiming privilege over internal corporate communications. How then can a corporate internally consider the commercial implications of a settlement offer without risking having to disclose those communications in the litigation? As the Court of Appeal suggests, it may be that those internal considerations are so entangled with privileged content that they cannot be extracted for disclosure or they would reveal privileged content. However, what is more likely to be of help is that those considerations are probably not responsive to any disclosure order in the litigation as they are unlikely to go to the issues in dispute. The test for privilege may be strictly applied but so too are a party’s disclosure obligations especially under the new Disclosure Pilot Scheme in the Business and Property Courts. Although this judgment reminds corporate parties to be cautious about the creation of internal communications it is not as unworkable as it may first appear.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com.