Litigation privilege: the dominance matrix

Posted: 25/11/2013


Legal professional privilege attracts its fair share of judicial and public attention. Broadly speaking, it protects confidential communications between a lawyer and client from disclosure, in order to allow the client unrestricted access to the lawyer’s professional skills and judgment. However, as the recent case of Tchenguiz v Director of the Serious Fraud Office demonstrates, the courts will look behind the labels applied to a communication and test whether in fact the shield of privilege should be allowed to operate.

The facts

The Tchenguiz case arose out of the highly publicised and ultimately unsuccessful SFO investigation into Robert and Vincent Tchenguiz (“RT” and “VT”) and the collapse of the Icelandic bank, Kaupthing. During the course of the judicial review (“JR”), the SFO conceded that the warrants relating to VT should be quashed. On 21 February 2012, the SFO wrote a detailed letter to the JR claimants relating to the errors in the information that had been put before Worsley J in obtaining the warrants.

The letter stated that that the investigation into VT had been triggered by a telephone call from Grant Thornton (GT). During the investigation certain reports which GT had prepared on the instructions of the joint liquidators of Oscatello Investments Ltd (themselves partners/directors of GT) (the “Reports”) were provided to the SFO. However, the SFO were only permitted to view GT’s draft Reports, but not to retain copies. The letter made clear that the SFO had made detailed notes of the material provided but no copies had been made.

In March 2012, the JR claimants wrote to the joint liquidators’ solicitors, Simmons & Simmons (“Simmons”), requesting copies of any documents shown to the SFO and asking GT to explain the basis for any assertion that the reports were privileged, including the identity of the person(s) on whose behalf the right was being asserted. The letter was intended to provide GT with an opportunity to consider and answer these concerns before the substantive hearing. GT was also offered the option of joining the proceedings as an interested party.

Simmons refused to provide the documents. They argued that the information GT had provided to the SFO was information received or prepared during the course of acting for the Resolution Committee of the Icelandic bank Kaupthing. The information was confidential as a matter of Icelandic law and GT could not answer questions without breaching professional rules of confidentiality. No argument was put forward as to legal professional privilege or any alleged interest of the joint liquidators in the Reports.

Meanwhile, shortly after a directions hearing for the JR, the SFO gave evidence, in the form of a witness statement from the SFO’s Paul Brinkworth, relating to the matters set out in the 21 February letter. In his witness statement, Mr Brinkworth said that in his overview he had referred “almost exclusively” to the Reports, which “provide a useful (and fair) summary of the basis of the core allegations within the Information” (para 25). Detailed notes taken from the Reports were exhibited to the witness statement and referred to in open court. The JR judgment clearly recorded the reliance the SFO placed on the Reports (para 96), and commented on the lack of co-operation by GT, observing that it was perhaps difficult to understand how Icelandic law and professional ethics could allow GT to assist the SFO in relation to allegations of criminal conduct, but not allow them to assist the court by providing the basis for those very allegations (para 197).

Following the JR judgment, the VT claimants renewed their requests for disclosure of the Reports by letters dated 31 August 2012 and 13 February 2013. No disclosure was forthcoming.

On 13 March 2013, Chadbourne & Park (“CP”) wrote to say that it had been instructed by the joint liquidators, and requested time to consider the ownership and control of the Reports in order to determine the scope of any litigation privilege. On 26 March 2013, CP asserted that the Reports were covered by litigation privilege – a point which had not been taken by Simmons & Simmons during the JR itself. No attempt was made to explain the basis for this assertion.

The RT claimants also sought disclosure of the Reports in correspondence during 2013; no disclosure was forthcoming. However, in April 2013, GT voluntarily disclosed other reports which had been prepared for Kaupthing and which had been shown to the SFO in the same manner described above, on the basis that although they were confidential, Icelandic law would in fact permit their disclosure. No assertion of privilege was made.

Application for disclosure

The VT claimants issued an application for third party disclosure under CPR 31.17 against the joint liquidators. Although no formal application was issued by the RT claimants, the court treated the application as being on behalf of all claimants (para 4).

The joint liquidators opposed the application on three main grounds.  First, that the disclosure was not necessary for the purposes of CPR 31.17; secondly, that litigation privilege applied, and thirdly, discretion. This article focuses on the court’s analysis of the position relating to litigation privilege.

Threshold test

Eder J first considered whether the Reports were properly the subject of a claim for litigation privilege. In so doing he accepted that the following principles applied (para 48):

  1. Advice given by accountants does not attract legal advice privilege; accordingly, the joint liquidators had to satisfy the test for litigation privilege (R (Prudential plc) v Special Commissioner of Income Tax).
  2. In order to attract litigation privilege, a communication must have been made with the dominant purpose of being used in aid of or obtaining legal advice from a lawyer about actual or anticipated litigation.
  3. Where litigation has not been commenced at the time of the communication, it has to be “reasonably in prospect”. This does not require the prospect of litigation to be greater than 50% but it must be more than a mere possibility (USA v Philip Morris & British American Tobacco and Westminster International v Dornoch Ltd).
  4. The burden of proof is on the party claiming litigation privilege to establish that the dominant purpose test is satisfied (West London Pipeline and Storage v Total UK).
  5. Evidence should be specific enough to show something of the deponent’s analysis of the purpose for which documents were created, and should refer to as much contemporaneous material as possible without disclosing the privileged material (West London Pipeline).

The VT claimants had also argued that the evidence ought to be given by the individual responsible for the creation of the document and whose motivation and state of mind is in issue. Without such evidence, they submitted, it would be more difficult, maybe impossible, to satisfy the test for litigation privilege. Eder J did not agree with this, holding that this went beyond Dornoch (para 49).

However, Eder J did accept the court should look at the present claims with “anxious scrutiny” for two main reasons: the alleged interest of the joint liquidators (as opposed to Kaupthing) had only just emerged; and the joint liquidators were not neutral third parties but a partner and director of GT, seeking to withhold the Reports in circumstances where GT had been criticised by the court and the VT claimants (para 50). The fact that the privilege points had not been raised by Simmons and were not taken by Kaupthing was also relevant (not least because they had disclosed other apparently similar GT Reports).

Dominant purpose test: in theory

The joint liquidators argued that the evidence submitted by their solicitor, Mr Verrill, was sufficient to establish that the Reports were produced for the dominant purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation (Waugh v British Railways Board).

Eder J did not agree. First, it was important to bear in mind that Mr Verrill was not the individual involved in producing the Reports. Neither had he been involved in the instructions given for the production of the Reports. Eder J could see no reason why, in principle, someone in Mr Verrill’s position “should not give evidence as to the provenance and purpose for which a document is produced on information and belief” (para 52).  While this was not therefore fatal, it was “entirely proper and justifiable” to scrutinise that evidence carefully, in particular because of the difficulties involved in going behind that evidence (para 52). The joint liquidators’ submission that the matter should be adjourned for Mr Verrill to be cross-examined or to allow the joint liquidators to adduce further evidence was dismissed as inconsistent with the overriding objective.

Eder J held that the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found a claim for litigation privilege. It is only if the purpose can properly be characterised as the “dominant purpose” that a claim for litigation privilege can be sustained. However, he did recognise the difficulties which arise where documents are produced for a dual purpose:

“Such difficulties are or may be particularly acute where documents come into existence, as in the present case, on the instructions of liquidators who are under statutory duties with regard (so far as possible) to the orderly collection of assets and settlement of liabilities… the proper performance of such duties may require the liquidators to obtain information simply to identify what (if any) assets or liabilities exist or perhaps what legal proceedings might possibly be brought against any third parties. Ultimately, once obtained, such information may well be important to enable liquidators to decide what if any proceedings might possibly be pursued; and, further down the line, such information may in fact be used for or in connection with pending or contemplated litigation or of conducting or aiding in the conduct of such litigation. However, unless such documents were originally produced for the “dominant purpose”… they cannot, in my view, be the subject of a proper claim for litigation privilege (para 53).”

Dominant purpose test: in practice

Having established the relatively high threshold for the dominant purpose test, and recognised that each case will turn on its own facts, Eder J applied the dominant purpose test to the evidence in respect of each Report by turn. He held that none of the Reports were protected by litigation privilege.

Eder J took into consideration several factors. The first thing he focussed on in relation to each Report was the date on which the Report was commissioned (if indeed this was given).  Where it was not given, a judicial eyebrow was raised. The next thing Eder J considered was the language used. In particular, did the magic words “dominant purpose” appear? Was there any evidence of a dual role, however slight? Eder J was prepared to accept that a Report could be important or even essential for the purpose of deciding litigation strategy; but as the Report in question was necessary for the joint liquidators’ solicitors to understand the accounting treatment of the loans, and to help the liquidators themselves fulfil their statutory duties, its dominant purpose was not to assist with the litigation.

The court took a tough line in relation to how clear or equivocal the evidence was in relation to the purpose of the communication. One Report was described as being commissioned for the dominant purpose of enabling the joint liquidators “to obtain information and advice in connection with litigation which was, and remains, contemplated against various potential defendants” (para 59).  This did not convince Eder J, who found this statement entirely vague and lacking in specificity. Who were these potential defendants? The language of “potential causes of action” and “possible claims” fell far short of the necessary threshold. The fact that (three years on) no proceedings had been issued pointed strongly against the suggestion that litigation was reasonably in prospect when the Report had been produced.

Eder J also emphasised that the critical question was the purpose for which the communication was originally produced rather than its actual use. Simply providing the communication to legal advisors did not satisfy the dominant purpose test, particularly where there was a time lag between the Report being created and its communication to the legal advisors in question.

Conclusion

Tchenguiz provides some useful guidance as to how litigation privilege will be applied by the courts. The Court of Appeal is however expected to hear the joint liquidators’ appeal against Eder J’s judgment in January 2014.

At present, it is clear that the threshold for passing the dominant purpose test is a high one: simply labelling a document as prepared for the purposes of litigation will not suffice, particularly not in circumstances where the court may already be wondering whether there is an ulterior motive for claiming privilege.

There are two angles to cover for parties wishing to benefit from litigation privilege. Where possible, documents should only be produced for one sole purpose. The date of commissioning the communication and its relationship to the litigation should be recorded. Where possible, the individuals involved in commissioning and drafting the communications should make a clear and specific contemporaneous note explaining their dominant purpose.

When giving evidence in support of a claim for litigation privilege, parties should rely on the author of the communication where possible. The court will also want to know some specifics: what type of litigation, against whom, on what possible grounds. Those parties who fill out their “dominance matrix” in as much and as specific detail as practicable will stand a better chance of operating the shield of privilege successfully than those left minding the gaps.

Cases

  • Waugh v British Railways Board [1980] AC 521
  • Three Rivers District Council v Governor & Company of Bank of England [2004] UKHL 48
  • USA v Philip Morris & British American Tobacco [2004] EWCA Civ 330
  • West London Pipeline and Storage) v Total UK [2008] 2 CLC 258
  • Westminster International v Dornoch Ltd [2009] EWCA Civ 1323
  • Robert Tchenguiz v Director of the Serious Fraud Office [2012] EWHC 2254 (Admin)
  • R (Prudential plc) v Special Commissioner of Income Tax [2013] 2 WLR 325
  • Robert Tchenguiz v Director of the Serious Fraud Office [2013] EWHC 2297 (QB)

This article was published in the Commercial Litigation Journal in November 2013.


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