A focus on litigation privilege: lessons from recent case law

Emilie Jones and Alan Sheeley from Pinsent Masons share latest case updates on litigation privilege, which protects communications between lawyers or their clients and any third party for the purpose of obtaining advice or information in connection with existing or reasonably contemplated litigation.
A man whispers in the ear of a woman at a meeting room board table.
Photograph: skynesher

In this series of updates, we highlight recent legal professional privilege (LPP) case law providing useful reminders and points of clarification for in-house lawyers.

In this second part, we focus on litigation privilege.

This applies to confidential communications created for the dominant purpose of obtaining information or advice in connection with the conduct of ongoing or contemplated adversarial litigation.

The importance of litigation privilege

Litigation privilege (LP) will be relevant for in-house lawyers less often than legal advice privilege (LAP), as LP will not apply to most day-to-day advice.

Nevertheless, understanding LP remains vital, particularly for in-house lawyers who may become involved in investigations.

In this context, LP can be a crucial form of protection, because it may apply to communications which are not lawyer-client legal advice but instead involve gathering information from third parties.

Investigations may involve diverse subjects, such as fraud; health and safety; employment; or simply the circumstances surrounding a potential breach of contract.

When conducting investigations, it is important to understand:

  • when LP might apply
  • if potentially available, how to maximise the chances that it will apply and be defensible, and
  • when LP may not apply

In the latter circumstances, it is particularly important to be mindful of what is put in writing.

Key takeaways include:

  • take particular care with communications during early-stage investigations, as these may not be privileged
  • evidence is critical to support claims to privilege in the context of investigations
  • LP may apply to communications by an entity which is not a party to the litigation, provided the other conditions of LP are satisfied – but seek advice if in doubt

The need for caution in early investigations

Parties and courts have continued to grapple with when LP will apply to communications created during investigations.

A particular issue is when adversarial litigation is “reasonably contemplated”.

It is only once this point is reached, and communications are created for the dominant purpose of obtaining information or advice in connection with the conduct of the litigation, that LP may apply.

For litigation to be “reasonably contemplated”, it must be a “real likelihood”. This does not require a greater than 50% chance of litigation, but a mere possibility of litigation is not enough.

Recent decisions have illustrated that litigation may not be “reasonably contemplated” even in some circumstances where a significant problem has arisen and/or the idea of a claim or regulatory issues has crossed a party’s mind.

They have also shown how, in early investigations, questions frequently arise about purpose.

Even if litigation is contemplated, if it is not the dominant purpose of the investigation – for example, if that work is principally to ascertain the facts or take remedial steps – a claim to LP will fail.

State of Qatar v Banque Havilland

In State of Qatar v Banque Havilland SA & ors [2021] EWHC 2172 (Comm), an investigation report was prepared by accountants for a bank, after a presentation by a bank employee was leaked.

The presentation was described on a website as “expos[ing] [a] stunning plan to wage financial war on Qatar”.

The bank recognised that this could have significant regulatory and legal consequences, notified regulators and commissioned the investigation.

In later litigation by Qatar, the bank claimed that the accountants’ report attracted LP.

The court disagreed. There was insufficient evidence that, at the time the accountants were instructed, any adversarial proceedings by either regulators or Qatar were anticipated.

The court also said that litigation was not the dominant purpose of the accountants’ work.

Instead, the dominant purposes were to fact-find, and to be able to satisfy and answer questions from a regulator.

Kyla Shipping v Freight Trading

In Kyla Shipping Co Ltd v Freight Trading Ltd [2022] EWHC 376 (Comm), the claimant company had been in dispute with its shareholders over whether a dividend should be declared.

During that dispute, allegations of mismanagement were made in relation to forward freight agreements (“FFAs”).

The majority shareholder instructed an expert to audit the FFAs “to make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence with” the minority shareholder.

The audit allegedly revealed a mispricing fraud, which was the subject of proceedings.

The court had to consider whether LP applied to the “ballast exercise”, prior to discovery of the mispricing claim.

The judge found that the expert had been instructed for the purpose of supporting the mismanagement allegation in correspondence. This was not a litigation purpose.

There was no suggestion in the correspondence that proceedings were envisaged in relation to the mismanagement claim.

It could not, therefore, be said that litigation in relation to that claim was reasonably contemplated.

The scenarios in these cases – including investigations to inform conversations with a regulator, and exploratory work to bolster allegations against another party – are examples of situations in which some may assume LP would apply.

Indeed, in some such circumstances, LP may be available.

However, these decisions illustrate how fact-sensitive the application of LP is, particularly in an investigation’s early stages.

They therefore remind in-house lawyers, who should be the first port of call, to exercise and encourage caution about the creation of documents during investigations.

Consider whether some communications can be conducted orally.

Specialist advice should be sought if there is any doubt about the privilege status of an investigation or how best to structure or manage it.

Evidencing privilege

The judgments in State of Qatar and Kyla Shipping also refer to a lack of evidence to support the claims to LP.

While privilege is a matter of substance not form, the decisions therefore highlight the importance, for any claim to LP, of contemporaneous written evidence that litigation was reasonably contemplated and was the investigation’s dominant purpose.

Instructions to internal and external lawyers and other experts are useful places to record this.

Such evidence to support a claim to LP, where applicable, is important even where lawyers carrying out investigatory work are also involved in giving legal advice to the business on the matters in question.

This is because, while their legal advice and instructions to advise should generally be covered by LAP, lawyers may generate some communications during their investigation which neither contain nor give a clue as to their advice.

An example is notes of fact-finding interviews with employees who are not in the “client team” authorised to seek and receive legal advice on behalf of the company.

Such notes will not generally be covered by LAP, even if their purpose is to enable the lawyers to advise.

This controversial aspect of English privilege law, deriving from Three Rivers District Council & ors v Governor and Company of the Bank of England (No. 5) [2003] EWCA Civ 474, was confirmed by the Court of Appeal in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation [2018] EWCA Civ 2006 (ENRC).

The Court of Appeal rejected arguments by ENRC and the Law Society, intervening, that LAP should also encompass the provision to lawyers of factual information by “mere” employees, if the purpose is to enable the lawyers to advise their corporate client.

To depart from that position would require reconsideration of the law by the Supreme Court.

Al Sadeq v Dechert

It is possible the Supreme Court may have such an opportunity in Al Sadeq v Dechert [2024] EWCA Civ 28, in which the Court of Appeal recently gave judgment.

The defendants were lawyers who had carried out an investigation, and their claims to privilege were challenged in various respects.

The defendants contended that the Three Rivers (No. 5) principle was wrong and should be reversed. They accepted that Three Rivers (No. 5) was binding on the Court of Appeal.

However, they took the point before the Court of Appeal “to preserve the position for an appeal to the Supreme Court”.

It remains to be seen whether such an appeal will take place and if so what the issues in any such appeal would be. This will be watched with interest.

LP for non-parties

Al Sadeq also provides helpful clarity that LP can apply to communications by entities which are not and do not expect to be a party to the contemplated litigation.

The judgment gives examples of situations in which this may be relevant, and where the contrary would produce unjust results.

For example, two companies may form a joint venture company which becomes party to litigation.

Each company may obtain their own advice and information in relation to how the litigation should be conducted.

Those processes should attract LP regardless of whether the individual companies will be a party to the litigation, provided all other elements of the test for LP are satisfied.

This is reassuring for in-house lawyers, who might be asked to investigate an issue affecting the business in circumstances where, for example, it is not yet possible to know who will be party to any litigation.

It is of course still important, before starting any investigation, to consider what litigation may arise and what shape it may take.

As noted, all other elements of the test for LP, including that litigation is reasonably contemplated and is the dominant purpose of the documents created, must still be satisfied.

However, it is welcome that the law does not impose an additional burden on lawyers to satisfy themselves that the business on whose behalf they are undertaking the investigation will be a party to that litigation.

This is subject to two caveats. First, as noted above, it is possible that this matter will go to the Supreme Court.

Second, the Court of Appeal has left open a question whether the entity claiming LP must also have a “sufficient interest” in the contemplated proceedings. This is because the court was satisfied that any such test would be satisfied on the facts of Al Sadeq.

Even if such a test were to apply, it would only very rarely be relevant. It is likely to be very rare that the dominant purpose test for LP is satisfied but the party claiming privilege is “essentially a stranger to the litigation”.

Again, however, if in-house lawyers are in doubt about whether a good claim to LP could be made by an entity on whose behalf they are asked to conduct an investigation, they should seek specialist advice.

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