In recent years the courts have been slow to allow a party to litigation to refuse to disclose a relevant contemporaneous report on the ground that it is protected by litigation privilege. The latest decision in Starbev GP Ltd v Interbrew Central European Holding BV is no exception. We look at the test for claiming litigation privilege and the ways in which organisations and their lawyers can safeguard a right to privilege where it may exist.
When is a document protected by litigation privilege?
A document is protected by litigation privilege if it is made:
- Between a lawyer and a client, a lawyer and a third party or a client and a third party
- For the dominant purpose of conducting or aiding the conduct of actual litigation or litigation which is reasonably in prospect
Competing policy concerns
This test was laid down by the House of Lords in Waugh v British Railways Board (1979). The court held that the due administration of justice strongly required an internal contemporaneous report into an accident, containing statements by witnesses on the spot, and almost certainly the best evidence as to the cause of the accident, to be disclosed by the British Railways Board. However, while it is desirable that all relevant evidence should be adduced to the court, there is also an important principle that a defendant must be able properly to prepare his case. The dominant purpose test was seen to strike a fair balance between these two competing policy concerns.
When is litigation reasonably in prospect?
In practice, a party asserting that a report is protected by litigation privilege will often be able to persuade the court that litigation was reasonably in prospect at the time the report was prepared, but be unable to satisfy the dominant purpose test. In USA v Philip Morris (2004) the Court of Appeal held that, for litigation privilege to apply, the party must be aware of circumstances which render litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility. Subsequently, in Westminster International BV v Dornoch Ltd (2009) the Court of Appeal put it this way - a mere possibility of litigation is not enough, but the chance of litigation does not have to be greater than 50 per cent.
The language used in contemporaneous correspondence is critical here. The phrases “civil recovery opportunities,” “potential causes of action” and “possible claims” indicated that litigation was not reasonably in prospect in Tchenguiz v Serious Fraud Office (2013). Appointing a lawyer does not show that litigation was in prospect rather than merely possible and may do no more than indicate a desire to generate a claim for privilege (Axa Seguros SA v Allianz Insurance Plc 2011).
The dominant purpose test
This is the hard part of the test to satisfy. Where a report has been prepared with two purposes of equal weight, the anticipated litigation will not be the dominant purpose. After an accident, an investigatory report will almost certainly be obtained, both for obtaining legal advice in anticipation of litigation arising from the accident and to answer concerns about safety. Following Waugh, it is difficult to prove that the anticipated litigation was the dominant purpose – see the recent unsuccessful attempt to do so in Transport for Greater Manchester v Thales Transport & Security Ltd (2013).
A simple way of approaching the dominant purpose test is to ask whether the facts in the report need to be established whether or not litigation ensues. If they do, the report is unlikely to be privileged.
The claim to privilege in Starbev
Interbrew sold a brewing business to the Starbev in 2009 and Starbev sold it on in April 2012. Suspecting that Starbev had deliberately structured the sale of the business in order to prejudice Interbrew’s rights (there was a history of disputes between the companies), Interbrew sought advice from Barclays concerning the structuring of the consideration for the on-sale. Three months later, in early July 2012, it also asked KPMG to carry out an audit pursuant to its right under the Contingent Value Right Agreement or CVR. It asked for a draft report on 20 July 2012. Interbrew reserved its position in a letter dated 21 August 2012 and sent a letter before action to Starbev alleging that it was entitled to deferred consideration as a result of the on-sale on 28 September 2012.
Interbrew claimed that the documents relating to both the Barclays advice and KPMG’s involvement from 20 July 2012 onwards were protected by litigation privilege. The judge did not agree. He concluded that Barclays’ role was investigatory and, unless and until they confirmed that there was substance to Interbrew’s suspicion, there was no real reason to anticipate litigation. Interbrew also had “good and independent reason to have these checks and calculations made”.
Interbrew only claimed privilege in relation to the KPMG documents from 20 July 2012. It had to accept that litigation had not been reasonably anticipated in early July, thereby effectively scuppering its claim to privilege in respect of the Barclays’ documents. KPMG’s retainer letter of 4 July 2012 is carefully circumscribed and does not support any suggestion that litigation was anticipated. There was no record of the retainer being changed or extended. The request for a draft report on 20 July 2012 described it as “part of our normal process” and made no mention of anticipated litigation.
However, the killer point so far as the KPMG documents were concerned was the failure by Interbrew’s lawyers to advise Interbrew to preserve disclosable documents when they had a conference call with them on 20 July 2012. The practice direction to CPR 31B makes clear that this must be done “as soon as litigation is contemplated”. It was not in fact done until 5 October 2012.
Attitude of the courts in insurance cases
In Westminster v Dornoch, the Court of Appeal took what could be seen as a more flexible approach to litigation privilege in the context of a major casualty at sea. Shipowners claimed for a constructive total loss following a collision. The defendant insurers were entitled to refuse to disclose a report prepared by surveyors instructed to comment on the claimant’s survey report. The court approved the following passage in The Sagheera (1997):
“In the present case the retainer is said to be for the purpose of investigating and advising on the casualty. In my judgment that meets the dominant purpose test, for the purpose of investigation is inseparable from the purpose of advice.”
However, in Axa Seguros SA v Allianz Insurance plc the judge followed Waugh (unfortunately without mentioning Westminster v Dornoch) in the context of a reinsurance claim following damage to a Mexican highway caused by Hurricane Juliette. The reports were held to have been produced for the dual purposes of (1) assessing whether the highway had been constructed to the requisite standard in accordance with a term in the reinsurance contract and (2) determining to what extent damage was caused by the hurricane and verifying the figures for the remedial work. The first purpose concerned a possible coverage dispute, but the second purpose concerned matters in which insurer and reinsurer shared a common interest. Accordingly the defendant reinsurers had not satisfied the dominant purpose text and had to disclose the reports.
The effect of the CPR
Recent cases concerning CPR 35 such as Odedra v Ball (2012) have made it increasingly difficult for a party to preserve privilege in their expert’s reports and communications, particularly if they wish or need to change experts. In Axa the judge expressed the view that, where a party engages an expert to advise immediately after an accident or event and subsequently uses that expert as their Part 35 expert for trial, it will almost certainly be impossible to maintain privilege over the contemporaneous report, since the expert (and any other expert shown the report) will be under a duty to inform the court of any details that bear upon their expert opinion.
Tips to help safeguard potentially privileged documents
- Keep potentially privileged documents confidential. They can be disclosed internally or to interested third parties (best to expressly set out the limit of the waiver of privilege intended) but not more widely.
- The wording of proposed retainers of professional advisers such as accountants need to be reviewed with privilege in mind.
- Involve litigation lawyers at an early stage – it’s their job to know about the continually evolving Civil Procedure Rules concerning disclosure (CPR 31) and experts (CPR 35).
- Potential parties need to be advised about the significance of using certain phrases in correspondence where litigation is contemplated.
- Consider asking for separate reports for different purposes - for example, one containing potentially privileged details and the other containing a non-contentious review of the facts.
- Consider appointing a different professional for the initial investigation from the one you plan to use if litigation eventuates.
Click here to read the judgment in Starbev GP Ltd v Interbrew Central European Holding BV.
Click here to read our briefing on Tchenguiz v Serious Fraud Office.