Litigation Privilege and Adversaries

Litigation privilege

In short, litigation privilege belongs to the client. It protects (i) written or oral communications between a client or lawyer and a third party or (ii) documents produced by or on behalf of a client or his lawyer which came into existence when litigation commenced or was reasonably contemplated.  The sole or dominant purpose of these communications is litigation.³

Background

The underlying dispute in this case is the plaintiffs’ claim for relief in respect of its allegation that the defendants’ participated in a secret scheme under which funds due to the plaintiffs were diverted at the instruction of certain directors of the plaintiff companies in breach of their fiduciary duties.

The plaintiffs claim that a certain financial services business, now under the ownership of RBC Trust Company (International) Limited, dishonestly assisted in that breach of fiduciary duty.

The issue of litigation privilege arose during the course of an ongoing interlocutory dispute between the plaintiffs and RBC Trust Company (International) Limited and its subsidiary Regent Trust Company (“RBC”) as to the plaintiffs’ discovery.

In the latest round of interlocutory proceedings, the plaintiffs applied to limit discovery and RBC applied for specific discovery. The plaintiffs sought to assert litigation privilege in relation to certain communications that had taken place between the plaintiffs and the first defendant Mr Martin Forster, who was a former director of the Plaintiffs and familiar with the operation of the illicit scheme that was the subject of the proceedings.

The practical purpose of communicating with Mr Forster was that the vast bulk of the documentation pertaining to the Plaintiffs’ business was spread across eight large warehouses in Kenya. Mr Forster’s evidence was that what documentation there was, that related directly to the scheme, would not be found in those warehouses and so his account was relevant to whether the Plaintiffs should be required, as part of their discovery, to search through every document in them.

The circumstances of those communications, as relied upon by the plaintiffs, were as follows:

1. The dominant purpose of the communications between the plaintiffs and the first defendant was to assist the plaintiffs in obtaining information to support their application to limit discovery;
2. Mr Forster did not oppose the plaintiffs’ application and was therefore not an opposing party in the interlocutory proceedings. He acted as a witness for the plaintiffs by swearing an affidavit in respect of his knowledge of how the secret scheme worked, what documents were created about it at the time, the extent to which those documents still exist and their location; and
3. The plaintiffs and Mr Forster were parties to a written confidentiality agreement in respect of the documents and communications that were exchanged between them.

RBC challenged the claim to litigation privilege asserted in these communications on the basis that the plaintiffs and Mr Forster were opposing parties in the litigation and that the public interest is best served by confining the scope of what documents can be withheld on the basis of privilege. RBC further argued that not only do communications between opposing parties lack the necessary confidentiality to be privileged, any such confidentiality agreement was overridden by the public policy to disclose such communications.

Decision

RBC’s challenge to the claim to litigation privilege succeeded.

With reference to a number of English authorities, the Court carried out an in-depth analysis of the well-known principles underlying litigation privilege. The Royal Court made the following observations in relation to the specific challenge raised:

1. The burden is on the party claiming litigation privilege to establish it;
2. Any statement provided by an opposing party is disclosable regardless as to whether it is made in relation to the substantive or interlocutory proceedings. Opposing parties may communicate with each other on a without prejudice basis in relation to the substantive and interlocutory disputes. Such communications are appropriate and can be withheld from disclosure; and
3. It is sensible and prudent for parties to expressly agree to keep communications between a party and a witness, confidential. Where the witness is also an opposing party, a confidentiality agreement cannot be used to help claim litigation privilege. The Court described this as a “bootstraps” approach to attempt to circumvent McKay and Faraday which cannot be allowed to succeed”.

The plaintiffs relied on the definition of litigation privilege as set out in Three Rivers District Council v Governor and Co of the Bank of England (No.6) [2005] 1 AC 610⁴.  The Court refused to attach a literal interpretation to that definition.  The Court observed that the decision in Three Rivers related to communications internal to a corporate entity. It did not apply to communications between opposing parties to litigation.

Tying together the remarks of Lord Hutton LCJ in McKay v McKay [1988] NILR 79 (“privilege cannot apply where the adverse party has himself supplied the information and is therefore aware of it” at page 617) and Cooke J in Faraday Capital Limited v SBG Roofing Limited & Ors [2006] EWHC 2522 (Comm) (“in the context of information supplied by or on behalf of one party to another, there can be no question of confidentiality” at paragraphs 18 and 19), the Court observed that the basis for litigation privilege focuses upon the relationship between the client and his lawyer, not opposing parties.  The Royal Court further remarked that “the authorities clearly draw a distinction between communications with third parties where the confidence of such communications may be protected and communications between opposing parties”.

The Royal Court rejected the argument that an assertion of litigation privilege depends on whether the parties were on the same side of the immediate dispute; whether the dispute was interlocutory or substantive; and whether the ‘opposing’ party was a witness or a party to the particular issue. With the ‘bigger picture’ in mind, the Court stated that:

“Such an approach is likely to lead to a complicated analysis in many cases and also runs the risk of abuse. Litigation privilege should not depend on which hat a party claims to be wearing at a particular point in time.”

The court also observed something of an asymmetry in the ability of the parties to multi-party litigation to rely on privilege as a defence to disclosure of their communications. Where a plaintiff sues multiple defendants, as between the defendants there is likely to be a common interest in the defence of the claim and so communications may pass between them on a common interest privileged basis. However where a plaintiff wishes to have confidential communications with one of multiple defendants which would otherwise fall within the scope of litigation privilege, those communications must be disclosed.

While the court was reluctant to analyse the claim to litigation privilege on the basis of which ‘hat’ the parties were wearing, that was the material basis of its decision. Had Martin Forster been a witness and not a party to the proceedings, his communications with the plaintiffs would clearly have been protected by litigation privilege. The fact that Martin Forster was a party prevented any claim to litigation privilege arising.

The Master further remarked that:

“My conclusion is also consistent with the more recent trend of the courts to encourage parties to take a cards on the table approach to their case; the danger of the plaintiffs’ argument is that it might lead to relevant evidence being suppressed under the guise of a claim to privilege […] any exceptions to privilege should be construed no more widely than is necessary”.

Comment and Impact

The Royal Court’s decision illustrates:

1. The need to tread carefully when communicating with opposing parties in multi-party litigation even if the relevant parties’ positions are aligned in relation to certain interlocutory issues;
2. Those dealing with such communications should advise their clients that those communications are disclosable unless those communications are on a without prejudice basis;
3. The interests of the public remain at the forefront of the courts’ decision-making process when faced with questions relating to privilege; and
4. The bounds of litigation privilege are closely supervised. The Court will refrain from adopting a creative approach when interpreting and applying the principles underlying litigation privilege.

Interestingly, the question of whether certain communications between opposing parties fall under the guise of without prejudice (and are therefore not disclosable) has been leftover “for another day”.

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¹ Oxfordshire County Council v M. and another [1994] Fam. 151 at 163

² Bilta (UK) Limited (in liquidation) v Royal Bank of Scotland PLC [2017] EWHC 3535 (Ch); SFO v ENRC [2018] EWCA Civ 2006

³ Phipson on Evidence, 17th ed., para. 23–89, at 688 (2010)

⁴ Definition: litigation must be in progress or in contemplation; the communications must have been made for the sole or dominant purpose of conducting that litigation; and the litigation must be adversarial, not investigative or inquisitorial.