Litigation privilege: the dominant purpose test revisited

David Salcedo, Associate, London

In order for a communication to be subject to litigation privilege, it must be confidential and it has to have been made for the sole or dominant purpose of being used in aid of, or obtaining legal advice about, actual or anticipated litigation. Where litigation has not been commenced at the time the communication is made, it has to be reasonably in prospect.

Historically, the evidential burden required to convince a court that a document was subject to litigation privilege was not perceived to be onerous. If a litigant's solicitor gave evidence that a document was subject to litigation privilege, and if the circumstances did not contradict that evidence, the prospects of asserting litigation privilege were perceived to be good.

The position has since changed. Following the recent High Court decision in Tchenguiz -v- SFO, where litigation privilege is asserted, the court must now subject that assertion to "anxious scrutiny".¹ Two further decisions reinforce that view. They illustrate that, where an assertion of litigation privilege is challenged, the party asserting privilege will need to adduce clear, specific evidence to support that assertion. A careful examination of the factual context surrounding the relevant communication will need to be made. If any facts are identified which are unhelpful to the claim to privilege, those facts will need to be addressed directly.

Rawlinson and Hunter Trustees SA & Others -v- Akers and another²

Facts

This case concerned an application for third party disclosure in the context of proceedings brought by the Tchenguiz brothers against the Serious Fraud Office (SFO). As part of their claim, the claimants alleged that their arrest and the related search and seizures of their homes and business premises in 2011 were unlawful. They alleged that the SFO's application for the search warrants was made largely on the basis of information contained in five reports prepared by Grant Thornton. The reports were shown to the SFO prior to the application. However, the SFO was not permitted to make copies and was not able to disclose them.

The claimants sought disclosure from those who had commissioned the reports: the joint liquidators of a group of companies known as the "Oscatello companies". Prior to the financial crisis the Oscatello companies had been controlled by the trustees of a trust whose main beneficiaries included Robert Tchenguiz. Following the liquidators' appointment to the Oscatello companies, litigation ensued in various jurisdictions in which the Oscatello companies found themselves on the other side of litigation to parties associated with the Tchenguiz brothers. It was in this context that the claimants now sought disclosure of the reports.

At first instance, Eder J ordered disclosure. He rejected the liquidators' assertion that the reports were subject to litigation privilege. The liquidators appealed.

Court of Appeal decision

The Court of Appeal upheld Eder J's decision. The evidence provided, namely a witness statement from the liquidators' solicitor, failed to persuade the Court that the requirements of litigation privilege had been satisfied.

In relation to two of the reports, which could have been made for the purpose of the litigation or for other purposes, the liquidators failed to establish that the litigation was the dominant purpose. The liquidators' evidence in this regard was found to be vague where clarity and precision were required, and they failed to grapple with the need to establish which was the dominant purpose.

In relation to the other three reports, the liquidators failed to establish that they had been created at a time when litigation was reasonably in prospect. In one instance, the liquidators failed to deal with the fact that more than two and a half years had elapsed since production of the report without the commencement of any proceedings.

Starbev GP Ltd -v- Interbrew Central European Holding BV³

Facts

Starbev had acquired a brewing business from Interbrew. When Starbev later re-sold the business to a third party, Interbrew claimed it was entitled to deferred consideration under a contingent value rights agreement (CVR). In the ensuing litigation, Interbrew asserted litigation privilege over two categories of documents:

• documents relating to advice received from Barclays concerning the structure of the consideration for the sale by Starbev of the business it had previously acquired from Interbrew (the Barclays Documents); and
• documents relating to Interbrew's dealings with KPMG regarding work done in relation to the CVR pursuant to which Interbrew was allegedly entitled to deferred consideration (the KPMG Documents).

High Court decision

In relation to both categories of documents, the Court held that Interbrew had failed to prove that the requirements for litigation privilege were satisfied.

The Barclays Documents

The Court was not satisfied that the evidence proved that the dominant purpose of the relevant communications was anticipated litigation. While it was shown that Interbrew had a suspicion concerning the re-sale of the business by Starbev, and Barclays was asked to investigate that suspicion, the Court found that unless and until Barclays confirmed that there was substance to that suspicion, litigation could not reasonably be anticipated.

The investigatory nature of Barclays' role was borne out by a number of contemporaneous documents which referred to its role as one of checking the position of and calculating the payment that might be likely to come to Interbrew as a result of the sale.

The KPMG Documents

The Court was again not satisfied that the evidence showed that litigation was the dominant purpose of the relevant communications. Importantly, KPMG's retainer letter stated that KPMG was retained to conduct an audit under the CVR. The next stage contemplated under the retainer letter was seeking agreement with Starbev. The retainer made no mention of litigation.

In a key email from Interbrew to KPMG dated 20 July 2012 (the date from which it was claimed that litigation privilege applied to the KPMG documents), Interbrew requested a written summary of KPMG's findings since having been retained on 4 July 2012. Interbrew failed to mention any anticipated litigation, either as the context to, or the purpose for, requesting the written summary. On the contrary, Interbrew described the request as "part of our normal process". The scope of this request went no further than what KPMG had already agreed to in its retainer letter. The report was also required to cover work which had been done in "the past couple [of] weeks", i.e. before it was asserted that litigation was in prospect.

The Court found there to be "an inherent implausibility" in Interbrew's claim for privilege. It had failed to explain how, at 4 July 2012, the date KPMG was retained, litigation was not reasonably anticipated and the primary purpose for instructing KPMG was to carry out the relevant audit, but by 20 July 2012 litigation was said to have become the dominant purpose for instructing KPMG.

For a refresher on the scope of litigation privilege see our Quickguide on Privilege.

Please click on the links below for the other articles in the April 2014 Commercial Litigation Newsletter:

• Service: recent developments
• Brussels Regulation: which takes priority - contract or tort claim?
• Failure to respond to a request for mediation is in itself unreasonable
• Settlement: recent developments
• Changing experts: full disclosure and timely notice required
• Impact of contractual exclusion clauses on the availability of injunctive relief
• Deciphering Part 36: the saga continues
• Court news: CPR update and other developments
• Collective actions update: "opt-out" coming to a competition claim near you
• Reforms to judicial review: Part II

_{Notes
^1. [2013] EWHC 2297 (QB).
^2. [2014] EWCA Civ 136.
^3. [2013] EWHC 4038 (Comm).}