Many organisations may have assumed that discussions amongst the board about a settlement of a dispute would be covered by litigation privilege, but this judgment highlights that this will not always be the case, said specialist in litigation Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com.
"The test for litigation privilege is generally understood to be that set out by Lord Carswell in the so-called 'Three Rivers No.6' case that came before the House of Lords," Sheeley said. "This is commonly considered a three-stage test, requiring that litigation is in progress or reasonably contemplated, the communications were for the sole or dominant purpose of conducting that litigation, and the litigation is adversarial. This latest Court of Appeal ruling on privilege suggests that in fact the test is a four-stage test - the additional stage being the primary need for the communication to be 'for the purpose of obtaining information or advice'."
"This decision emphasises, yet again, that even during litigation, which is now a very wide term following the recent ENRC decision, documents should not be created unless absolutely necessary. Organisations in particular need to be mindful of the fact that if litigation is ever being discussed internally and a note has to be prepared, the contents of the note must 'reveal the nature of the advice or [information]' which has been obtained for the purpose of conducting the litigation, as the Court of Appeal has confirmed that this would be covered by litigation privilege," he said.
Sheeley said he expects the Supreme Court to be asked to further clarify rules around privilege.
"With the rules around privilege being continually challenged it is only a matter of time before the Supreme Court is requested to reconsider privilege from a modern day perspective," Sheeley said "Such an opportunity would also allow the term 'client', for the purposes of legal advice privilege, to be looked at afresh as well. In the ENRC case, the Court of Appeal gave some fairly strong indications that this would be a welcome development."
The Court of Appeal issued this latest ruling in a case involving West Ham United Football Club and E20 Stadium, the company responsible for managing the London Stadium where West Ham plays its home matches.
West Ham was in dispute with E20 over the extent of its rights to utilise all the seating in the London Stadium. The point before the Court of Appeal concerned West Ham's bid to have six emails between E20 board members and between E20 board members and stakeholders inspected by the court. E20 said that the emails contained discussion about the potential settlement of the dispute.
The High Court previously ruled the emails were subject to litigation privilege, but that finding was overturned by the Court of Appeal.
The Court of Appeal said the issue was "whether litigation privilege extends to documents which are concerned with the settlement or avoidance of litigation where the documents neither seek advice or information for the purpose of conducting litigation nor reveal the nature of such advice or information".
The Court of Appeal referred to Lord Carswell's summary of the scope of litigation privilege. He determined that "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 if certain conditions are satisfied. Those conditions are that litigation is in progress or in contemplation; that the communications have been made for the sole or dominant purpose of conducting that litigation; and that the litigation must be adversarial, not investigative or inquisitorial.
"We would accept that a document in which advice or information obtained for the sole or dominant purpose of conducting litigation cannot be disentangled, or a document which would otherwise reveal the nature of such advice or litigation, would itself be covered by litigation privilege," the Court of Appeal said. "It must also not be forgotten ... that even if a document is not covered by litigation privilege it may yet be covered by legal advice privilege. That is not, however, the basis on which privilege for the [six emails] is claimed in this case."
"The sole ground upon which privilege is claimed for the [six emails] is that (with immaterial variations) they were created: '… with the dominant purpose of discussing a commercial settlement of the dispute when litigation with [West Ham] was in contemplation.' We do not consider that a claim in those terms falls within the scope of litigation privilege," it said.
E20 argued that litigation privilege applies to "discussions relating to formulating, finalising, and setting out a purely commercial settlement proposal", according to the ruling. However, the Court of Appeal said it had not been "shown any authority which would extend the scope of litigation privilege to purely commercial discussions".
The Court of Appeal also rejected an argument that privilege in any event applied to internal communications within a corporate body.
The Court of Appeal said: "Litigation privilege is engaged when litigation is in reasonable contemplation… Once litigation privilege is engaged it covers communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation, provided it is for the sole or dominant purpose of the conduct of the litigation… Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation… Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege… There is no separate head of privilege which covers internal communications falling outside the ambit of litigation privilege as described above."
"This ruling is a shot across the bow; organisations have to be ever mindful of the creation of documents and the need to obtain legal advice before any investigation or review takes place and to keep seeking advice until conclusion," said Alan Sheeley of Pinsent Masons. "All too often clients come to us after others, such as an audit firm or HR, have already taken steps and generated documentation. At this stage, and taking into account the aggressive challenges to privilege we have seen over the last couple of years, it may well be too late to cloak all that previous good work with privilege – meaning that all the good and the bad is disclosable to the likes of regulators and other parties to litigation."