M6: Legal and litigation privilege

Made for the dominant purpose of conducting that litigation

 

Including deciding whether to make or resist a claim

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"Such a proposition appears to me to be at variance with the decision of the House of Lords in Waugh's case, from which it is, I think, clear that, if litigation is reasonably in prospect, documents brought into being for the purpose of enabling the solicitors to advise whether a claim shall be made or resisted are protected by privilege, subject only to the caveat that that is the dominant purpose for their having been brought into being." (Re Highgrade Traders Ltd [1984] BCLC 151 at 172)

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Fending off an assessment can form part of the litigation purpose

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"[66] The difficult question in the circumstances I have described is to determine whether litigation was the sole or the dominant purpose of the activities that RBS set in train following the HMRC letter. Mr Wardell argued persuasively that litigation was the sole purpose of the investigation after the sea change represented by the HMRC letter. I can see the force of his submission but I am not sure that it much matters whether the litigation purpose was the sole or merely the dominant purpose. The Highgrade approach would suggest that a subsidiary purpose is subsumed into the dominant litigation purpose. That, as I have already indicated, seems to me rather likely to be the position here. Andrews J thought that attempts to settle prevented the litigation purpose being dominant on the facts of her case. I cannot accept, as I have said, however, that one can properly draw a general legal principle from her approach to those facts. Whilst I accept that the situation in Highgrade was a quite different one, it is clear from that case and from the other Court of Appeal authorities cited that one has to take a realistic, indeed commercial, view of the facts. Just as the insurers were not determining the cause of the fire as a matter of academic interest, RBS was not spending large sums on legal fees here in the hope that HMRC would be dissuaded from issuing an assessment. If that is properly to be regarded as a purpose of the investigation at all, it was obviously a very subsidiary purpose. In the cases to which Mr Wardell pointed, the other purpose in dual purpose cases went beyond the litigation context. Here, fending off the assessment was just part of the continuum that formed the road to the litigation that was considered, rightly, as it turned out, to be almost inevitable." (Bilta (UK) Ltd v. RBS Plc [2017] EWHC 3535 (Ch), Sir Geoffrey Vos)

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"[105]  Similarly, in Bilta (UK) Limited (in liquidation) v. Royal Bank of Scotland [2017] EWHC 3535 (Ch) (“ Bilta ”), the Chancellor concluded that RBS was not spending large sums on legal fees for the primary purpose of dissuading HMRC from issuing an assessment against it, if that could even properly be regarded as a purpose distinct from the litigation purpose.

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[107]  The facts of this case lie between Waugh on the one hand and Highgrade and Bilta on the other.  In the former there was an express finding of dual purpose.  In the latter two cases, it is difficult to see what the alternative purpose was.  In relation to Highgrade , the only real interest for the insurers was in ascertaining whether potential proceedings under the fire policy could successfully be defended; in the latter, HMRC had made it clear that they were pursuing the tax and the company had to determine the extent to which such proceedings could be defended." (Director of Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006)

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Query at what stage of the investigation

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"[60] It seems to me that the HMRC letter did indeed amount to a watershed moment. Following an investigation into the facts, which had lasted more than two years, HMRC stated for the first time in the HMRC letter that it considered that it had sufficient grounds to deny RBS nearly £90 million by way of input VAT. The HMRC letter analysed the relevant law and applied the law to the facts as they understood them before asking for RBS's comments on those facts. It was, therefore, similar in nature as Mr Wardell has submitted to a letter before claim. Moreover, since HMRC had to prove no more under the Kittel test than that RBS knew or ought to have known that the relevant transactions were connected with fraud, it was highly likely at this point that an assessment would follow. That the assessment was highly likely is the evidence of Mr Collins and is also the business and revenue reality. It was hardly very likely that RBS would persuade HMRC to drop altogether a claim for many millions of pounds on the basis of a solicitor's report, however persuasive that report might turn out to be when HMRC had already determined expressly that it had evidence supporting the case that RBS "knew or ought to have known" of the VAT fraud." (Bilta (UK) Ltd v. RBS Plc [2017] EWHC 3535 (Ch), Sir Geoffrey Vos)

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HMRC may form the view that their assessment of tax is likely to be challenged

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"They did, however, submit that the commissioners ought not to have "anticipated litigation" within the meaning of the rules as to legal professional privilege as early as July 31, 1967. There was not, so far as I can see, any need for the appellants to have requested a reference to arbitration at that stage. It may well be that the request was made ex abundanti cautela and that the appellants were hoping that they might obtain a reduction in the tax payable by a process of negotiation. But whatever may have been in their minds it does not lie in their mouth to complain that the commissioners on receipt of the letter formed the view that any value which they fixed would almost certainly be challenged and there was nothing in the subsequent correspondence to cause them to think otherwise. So even if the existence of privilege in respect of the 2 (b) (i) documents depends on the reference to arbitration having been anticipated when they were written (which I doubt) I think that the Court of Appeal was right in holding that the claim was made out with regard to them as well as with regard to the 2 (a) documents." (Alfred Crompton Amusement Machines Ltd v. CEC (No.2) [1974] AC 405 at 431)

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However documents necessary to establish the amount of tax may have dual purpose

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"The commissioners' case for claiming legal professional privilege with regard to the documents comprised in heads 1 and 2 may be stated as follows: "The documents were obtained or came into existence for two purposes - first to assist the valuation department of the commissioners in fixing the wholesale value of the machines and secondly to assist the legal department in upholding that valuation in the arbitration which it was anticipated would be called for. If they had been obtained or had come into being for no purpose other than that of being laid before the legal advisers of the commissioners to help them in presenting the commissioners' case in anticipated litigation they would clearly have been entitled to legal professional privilege and the cases show that the fact that they were obtained or came into existence for another purpose as well even though such other purpose was in fact the primary purpose makes no difference."

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Here the two purposes for which the documents in question were obtained or came into existence were parts of a single wider purpose - namely, the ascertainment of the wholesale value in the manner prescribed by the Act. The first, and the sole immediate, purpose was to help the commissioners to fix what in their opinion was the true value; the second purpose was to help the solicitor, if the commissioners' opinion was challenged, to prepare their case for the arbitration. It was not - and hardly could have been - suggested that the mere fact that the commissioners would know in every case that their opinion might be challenged would itself enable them to claim that such documents as are in question here would be the subject of legal professional privilege whenever in fact their opinion was challenged. What is said to make them privileged in this case is the fact that the commissioners happened to expect that there would be an arbitration and called in the solicitor to "hold their hands" in the early stages. But, even so, in this case just as much as in cases in which no arbitration was in fact anticipated the commissioners had to form their own opinion as to value on the evidence available to them, including these documents, before any arbitration could take place. This feature of the case appears to me to distinguish it from the Ogden or Seabrook type of case and to make it analogous to the case of Jones v. Great Central Railway Co. [1910] A.C. 4. There a member of a trade union who thought that he had been unjustly dismissed by his employers furnished the union authorities (as required by the rules) with information in writing as to the facts of the case as he saw them in order to satisfy them that it was proper for them to sanction the employment of a solicitor to conduct the case and also for use by the solicitor in the conduct of the action if the employment of a solicitor was sanctioned. This House held that the letters in question were not the subject of legal professional privilege because the union authorities had themselves to consider them and act on them before the solicitor was employed to conduct the case. So here the commissioners had to form their own opinion as to value before the solicitor would use the documents for the purpose of defending their opinion in the anticipated arbitration." (Alfred Crompton Amusement Machines Ltd v. CEC (No.2) [1974] AC 405 at 431 - 433)

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Can include investigating whistleblower allegations

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"[109] In our judgment, in this case, the answer can be achieved by unpacking the words ‘compliance’ and ‘governance’.  Although a reputable company will wish to ensure high ethical standards in the conduct of its business for its own sake, it is undeniable that the ‘stick’ used to enforce appropriate standards is the criminal law and, in some measure, the civil law also. Thus, where there is a clear threat of a criminal investigation, even at one remove from the specific risks posed by the SFO should it start an investigation, the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation." (Director of Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006)

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Includes investigating insurance claim

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"The learned judge found a duality of purpose because, he said, the insurers wanted not only to obtain the advice of their solicitors, but also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite inseparable. The insurers were not seeking the cause of the fire as a matter of academic interest in spontaneous combustion. Their purpose in instigating the enquiries can only be determined by asking why they needed to find out the cause of the fire. And the only reason that can be ascribed to them is that of ascertaining whether, as they suspected, it had been fraudulently started by the insured. It was entirely clear that, if the claim was persisted in and if it was resisted, litigation would inevitably follow. The claim had been made and there was no indication that it was not going to be pressed, particularly after Mr MR's acquittal. It is, as it seems to me, entirely unrealistic to attribute to the insurers an intention to make up their minds, independently of the advice which they received from their solicitors, that the claim should or should not be resisted. Whether they paid or not depended on the legal advice which they received, and the reports were prepared in order to enable that advice to be given. The advice given would necessarily determine their decision and would also necessarily determine whether the anticipated litigation would or would not take place.

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The purpose was, and was only, to determine aye or no were they to litigate, and it was clearly in order to enable the solicitors to advise them on that matter that the relevant documents were obtained." (Re Highgrade Traders Ltd [1984] BCLC 151 at 173 - 174)

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"[31] On the other hand, I do consider that the Judge was both entitled and right to reach the conclusion which he did. This was a huge claim. The consequence of the cost of repairs exceeding €73.5 million triggered the right to the payment of €145 million under the Policy. It would inevitably give rise to complexities in relation to subrogation and many other legal issues of one kind or another. When the defendants received the WNV Report, they had concerns, which were serious ones, about the reliability of the figures for the reasons set out in Mr Davis's witness statement. It was as likely as not that Noble Denton would disagree with the WNV figures and that their own would be less than them. If they were less, there would be a real prospect of litigation. In my judgment, it was entirely understandable that in those circumstances the defendants would instruct solicitors, very much with a view to such possible litigation." (Westminster International BV v. Dornoch Ltd [2009] EWCA Civ 1323, Etherton LJ)

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Includes settling litigating at an early stage

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"[102] That, as it seems to us, was the wrong starting point.  The fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party does not, in our judgment, automatically deprive the preparatory legal work that they have undertaken of litigation privilege.  We can imagine many circumstances where solicitors may spend much time fine-tuning a response to a claim in order to give their client the best chance of reaching an early settlement.  The discussions surrounding the drafting of such a letter would be as much covered by litigation privilege as any other work done in preparing to defend the claim.  We doubt, therefore, the correctness of the legal principles that the judge stated at paragraph 61 of her judgment, and the way that she applied them at paragraphs 168-171.   In both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings." (Director of Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006)

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Does not include dual purpose of also deciding whether to exercise contractual right of rescission

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"[22] This application concerns a claim to privilege, not in respect of Mr. Martin's report, but in respect of the correspondence passing between Sotheby's, for whom Freshfields were acting from 27 April 2016, and Mr. Martin. The position, assessed objectively, as it has to be, appears to me to be that that correspondence took place for two purposes. The first was that Sotheby's had a contractual decision to make as to whether the painting was counterfeit and whether the sale would be rescinded. The second was that Mr. Martin's report would doubtless be used by Sotheby's in the contemplated litigation with Mark Weiss Ltd. (and/or the Buyer). Indeed, the letter dated 5 May 2016 from Sotheby's to Mr. Martin stated in terms that "all correspondence between you and Sotheby's relating to this matter is in the context of that anticipated litigation, to enable Sotheby's to understand the strengths and weaknesses of its position and to make the right legal and commercial decisions in anticipation of that potential litigation." That neatly identifies the two purposes. The commercial decision is obviously the decision whether or not to declare the painting counterfeit and, if so, to rescind the contract with the Buyer.

[23] Both purposes were, it seems to me, of equal importance and relevance. At any rate Sotheby's is unable, in my judgment, to establish that the second purpose was the dominant of the two purposes.

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[34] The decision in the present case must be based upon the evidence in this case. I have paid particular regard to (i) the terms of the contract between Sotheby's and the Buyer pursuant to which Sotheby's would, in certain circumstances, have to form a view that a painting which it had sold was a fake, (ii) the terms of the contract between Sotheby's and Mr. Martin pursuant to which Mr. Martin was to provide his opinion as to the authenticity of the painting but was not to provide "expert consultation as a consulting expert or testifying expert", (iii) the terms of the letter dated 5 May to Mr. Martin which identified two purposes for correspondence with Mr. Martin, one being the commercial decisions which Sotheby's had to take, (iv) the importance or gravity of any decision by Sotheby's that a painting it had sold was a fake, and (v) the fact that the Committee had before it the comments of Mr. Martin on the opposing expert's views which must have been elicited in correspondence with him. Those matters show, in my judgment, that Sotheby's are unable to establish that the dominant purpose of the correspondence with Mr. Martin was use in contemplated litigation. That was a purpose of the correspondence. But it was not the dominant purpose." (Sotheby's v. Mark Weiss Limited [2018] EWHC 3179 (Comm), Teare J)

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