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Dual use documents did not meet "dominant purpose" test for litigation privilege

24 January 2019

Correspondence passing between a claimant and art experts was not covered by litigation privilege as it was not created for the dominant purpose of litigation.  The correspondence was created for two purposes of equal importance.  The decision underlines the fact-sensitive nature of the court’s analysis in determining privilege and the difficulty for commercial parties in establishing that where documents are prepared for more than one purpose, including commercial decision making, the dominant purpose is for use in contemplated litigation: Sotheby’s v Mark Weiss Ltd [2018] EWHC 3179 (Co​mm)

The claimant acted as exclusive agent to the first defendant (the seller) to sell a painting.  The painting was sold, and the purchase price paid to the seller. 

The sale contract between the claimant and the buyer contained an offer by the claimant to rescind the sale and return the purchase price if the buyer provided written evidence raising doubts about the painting’s authenticity and the claimant determined it to be a counterfeit.

The buyer obtained a report from an art expert which concluded the painting was not authentic. The claimant commissioned a separate art expert to conduct a peer review of the buyer’s report. As a result, the claimant determined that the painting was a counterfeit, rescinded the sale and repaid the purchase price to the buyer.

The claimant then sought rescission of its contract with the seller and repayment of the purchase price. 

Defendant seeks correspondence between claimant and experts

The seller applied for inspection of the correspondence between the claimant (itself, or through its solicitors) and the two art experts. The claimant refused, relying on litigation privilege. By way of reminder, litigation privilege protects communications between clients or their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation when, at the time of the communication in question: 

  • litigation is in progress or reasonably in contemplation; 

  • the communications are made with the sole or dominant purpose of conducting that anticipated litigation; and 

  • the litigation is adversarial, not investigative or inquisitorial.

Claimant argued that dominant purpose was contemplated civil litigation

The claimant’s solicitor provided a witness statement setting out the basis of the claim to litigation privilege over the correspondence. The main points were:

  • “All the way through the preparation of the report, the fact that the matter was likely to end up in court…was the perspective from which the report was being prepared”;
  • the claimant’s solicitors “were advising on the report, and on its role in the forthcoming decision as to whether to rescind (which would almost inevitably result in proceedings being issued), from the perspective of how it would be used as evidence in the litigation”; and 
  • “…had litigation not been contemplated, then findings from Mr. Martin would have been sought, but no detailed written report of this kind would have been embarked upon and [the Claimant’s solicitors] would not have been engaged to undertake this exercise with Mr. Martin”.

The claimant submitted that the high profile SFO v ENRC privilege ruling and the present case were analogous, in that litigation would “inevitably” follow from the taking of a particular commercial decision. The claimant said that in the present case the “stick” which motivated the correspondence with the experts was the contemplated civil proceedings and so, using the same reasoning as the Court of Appeal in SFO v ENRC, the dominant purpose of that correspondence was to assist the claimant in that litigation.

Assessment of dominant purpose very fact-sensitive 

Teare J noted that the assessment of dominant purpose is fact-sensitive and so it is unsafe to use the determination of dominant purpose in one case to assist in identifying the dominant purpose in another – this is particularly so where the facts of the two cases are so very different and the “stick” analogy was more appropriate to criminal proceedings rather than civil litigation.

Two purposes – neither was dominant

Teare J found that the correspondence with both art experts had taken place for two purposes. The first was that the claimant had a commercial decision to make as to whether the painting was counterfeit and whether the sale would be rescinded. The second was that the reports would be used in the contemplated litigation with the seller. Both purposes were of equal importance. Teare J did not find the claimant able to establish that the second purpose was the dominant one, so he ordered inspection of all correspondence. Factors taken into consideration included: 

  • The terms of engagement of the art experts and the purpose of their work as set out in the letters from the claimant’s solicitors in both cases referred to the use of their work in relation to the commercial decision to be taken.

  • A committee had been specially convened by the claimant to take the decision as to whether the painting was a fake, which showed the importance of that decision.  

  • It was unrealistic to suggest that had there been no threat of litigation there would have been no correspondence with the experts beyond requesting and receiving the reports.

Comment

This judgment shows the English courts’ strict approach to analysing the reason or reasons why a document is prepared, when determining whether it is protected by litigation privilege.  Teare J referred to and followed the guidance in Starbev that it is necessary to subject the evidence to “anxious scrutiny”. He also referred to SFO v ENRC Ltd, in which it was stated that “The exercise of determining dominant purpose in each case is a determination of fact, and that the court must take a realistic, indeed commercial, view of the facts”.  

It is important for those asserting litigation privilege over a document to put forward clear and precise evidence of the dominant purpose for its creation.  It is therefore advisable to keep a written record of the context and purpose for documents being created, preferably prepared at the time of creation or contained within the document itself. If recording that a document is being prepared for the dominant purpose of contemplated litigation, it is important to consider whether this triggers any other obligations – such as the serving of document preservation notices, or notification of a possible claim to insurers.

Where it is anticipated that an expert report is needed for more than one purpose, it is worth considering whether to have separate correspondence and (if necessary) a separate report relating to the issues over which litigation privilege may later be claimed.

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.