In our October 2018 Smart Contracting Bulletin, we reported on the Court of Appeal decision in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited  EWCA Civ 2006 (“SFO v ENRC”). Since then, there has been a further flurry of disclosure disputes decided by the courts; we touch on a couple of significant decisions in this article.
The Financial Reporting Council Limited v Sports Direct International PLC  EWHC 2284 (Ch)
The Financial Reporting Council Limited (“FRC”) was conducting an investigation into the auditing firm Grant Thornton UK LLP, which arose out of its audit of Sports Direct International PLC’s (“SDI”) 2016 financial statements. The FRC made an application under its statutory powers to the court requiring SDI to provide various documents that it needed for its investigation. SDI rejected the request, asserting that these documents were privileged.
The court was asked to consider three questions:
1. Whether privilege applied to non-privileged documents by virtue of having been attached to correspondence passing between SDI and its lawyers;
2. Whether a waiver of privilege by SDI in forwarding the relevant documents to Grant Thornton for the purposes of the audit extended to the FRC; and
3. Whether production of the documents by SDI to the FRC would infringe any rights of SDI to claim privilege over the documents.
Unsurprisingly, in relation to the first issue, the court held that simply attaching non-privileged documents to emails passing between a lawyer and client is not sufficient to extend privilege to the attached documents. In order for these documents to be privileged, they would need to form part of the continuum of communications between the lawyer and client in relation to the giving or receiving of legal advice.
The court further held that although some limited waiver of privilege had been made in relation to the documents sent to Grant Thornton, this waiver did not extend to the FRC as the body responsible for investigating Grant Thornton. In this regard, the audit and the regulatory process were distinct from each other.
Finally, in relation to the third issue, the FRC contended that even if all 40 documents in question were covered by legal advice privilege, which had not been waived, producing these documents to the FRC for the purpose of its investigation would not infringe SDI’s privilege rights. Arnold J agreed and held that the production of documents to a regulator [the FRC] by a regulated person [Grant Thornton], solely for the purposes of a confidential investigation by the regulator into the conduct of the regulated person, was not an infringement of any legal professional privilege, and the same must be true for production of documents to the regulator by a client [SDI].
In the event that his primary position was wrong, as an alternative, Arnold J adopted Lord Hoffman’s reasoning from R (Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax  1 AC 563 and agreed, albeit “with some hesitation”, with the submissions made by the FRC, namely that, even if production of the documents would technically infringe SDI’s legal advice privilege, there was implicit authorisation for this in the legislation from which the FRC derived its investigatory powers. This is significant because privilege, as a fundamental human right, can only be overridden by primary legislation. SDI was, therefore, required to produce copies of the 40 documents withheld, as well as any other documents considered potentially responsive.
This decision is being appealed, the outcome of which may raise significant legal and practical issues in the context of regulatory investigations and the law of privilege.
WH Holding Ltd and West Ham United Football Club Limited v E20 Stadium LLP  EWCA Civ 2652
A dispute arose between WH Holding Limited and West Ham United (together “West Ham”) and the owners of West Ham United’s football stadium, E20, after West Ham’s request to increase the Olympic Park stadium’s match-day capacity was denied by E20. E20’s position was that it had made its decision based on health and safety concerns. West Ham disputed E20’s reasoning, alleging that its decision had been tactical because it intended to use this issue to its advantage during future commercial negotiations with the club.
West Ham sought disclosure of six emails which had passed between E20’s board members, and E20 board members and stakeholders. E20 declined to provide these emails on the basis that they were protected by litigation privilege as they were created “… with the dominant purpose of discussing a commercial settlement of the dispute when litigation with [West Ham] was in contemplation”.
By way of reminder, litigation privilege will apply where the document in question is a confidential communication between lawyer and client, or between lawyer/client and a third party, which is made for the dominant purpose of the conduct of litigation and such litigation is pending, reasonably contemplated or existing.
The High Court refused to order disclosure of these emails based on its view that - following the Court of Appeal’s decision in SFO v ENRC – litigation privilege was not solely limited to documents that obtained information or advice for use in the litigation but also included documents prepared for the purpose of settling or avoiding a claim. West Ham subsequently appealed this decision.
The Court of Appeal disagreed with the High Court’s interpretation and allowed West Ham’s appeal on this point. It stated that the SFO v ENRC decision confirmed that the avoidance or compromise of a dispute should be included under “conduct of litigation” but that such documents would only be covered by litigation privilege to the extent that they satisfied the dominant purpose test and also sought information or advice in connection with the litigation.
The Court of Appeal summarised its findings as follows:
“i) Litigation privilege is engaged when litigation is in reasonable contemplation.
ii) 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.
iii) Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation.
iv) Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege.
v) There is no separate head of privilege which covers internal communications falling outside the ambit of litigation privilege as described above.”
Finally, the Court of Appeal was also asked to consider the appropriate test for deciding when a court should intervene and inspect a document that has had its privilege status challenged in order to ascertain whether the test for privilege has been properly applied. Interestingly, the Court of Appeal disagreed with the leading decision in West London Pipeline and Storage Ltd v Total UK Ltd  EWHC 1729 (Comm) in which it was held that the court needs to be reasonably certain that privilege has been misapplied in order for inspection to take place. Instead, the Court of Appeal held that it should be a matter of general discretion “ … in accordance with the overriding objective [of the Civil Procedural Rules] which requires balancing dealing with cases justly, proportionately and at proportionate cost and allocating an appropriate share of the court’s resources. Among the factors which will be relevant to the exercise of the discretion are (a) the nature of the privilege claimed (b) the number of documents involved and (c) their potential relevance to the issues.” It did, however, comment that this broader discretion should be exercised cautiously and that the courts should be alive to the dangers of looking at a document out of context.
This disclosure dispute provides further guidance to those seeking to rely on the principles of litigation privilege and makes clear that, to benefit from its protection, documents relating to settlement and/or avoiding litigation still need to be concerned with obtaining information and advice in relation to the litigation. It may be that, in some instances, such documents will be covered by legal advice privilege, or even “without prejudice” privilege, but nevertheless care should be taken by companies when views on the pros and cons of settlement are put into writing in internal correspondence.
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