UK court decision provides clarity on scope of litigation privilege

The decision (67 pages / 1.27 MB) deals with questions on the scope and application of both forms of privilege – legal advice privilege and litigation privilege - as well as the so-called “iniquity” or “crime/fraud” exception to privilege.

Litigation privilege is the right for a party to withhold confidential documents from disclosure to another party on the grounds that they have been prepared for the dominant purpose of litigation which is ongoing or reasonably in contemplation.

The judgment is “of real practical value to businesses, setting out a number of useful examples of situations where limiting litigation privilege to those who are a party to the litigation or contemplated litigation in question would produce unjust results,” Emilie Jones, commercial litigation expert at Pinsent Masons, said.

The decision confirms that a business may be entitled to the protection of litigation privilege in respect of their communications, even if that business is not a party or expected party to the ongoing or contemplated litigation. This is subject to the other elements of the litigation privilege test being satisfied. These include that the communications must be confidential, there must be a “reasonable contemplation” of adversarial litigation proceedings, and the conduct of that litigation must be the main purpose of the communications.

In this case, the defendant lawyers had been instructed by the government of Ras Al Khaimah (RAK), and subsequently a related company (RAK Development), to investigate alleged fraud perpetrated against the Ras Al Khaimah Investment Authority (RAKIA) and associated entities.   The Court of Appeal rejected an argument that some documents created during the investigation could not attract litigation privilege on the grounds that the defendants’ clients were not contemplated as parties to the litigation in question.

The examples given by the court of situations where it was important for litigation privilege to be available to non-parties included the situation of a joint venture company formed by two companies, where the joint venture company becomes party to litigation. In this scenario, each of the partner companies may wish to conduct their own process of information-gathering in relation to how the litigation should be conducted. According to the judgment, those processes should attract litigation privilege provided the test is otherwise satisfied.

Similarly, the court also pointed out that the availability of litigation privilege to non-parties was important where a party to litigation is insured, and their insurers are heavily involved in the conduct of proceedings but are not themselves a party.  The court commented that it would be “absurd” if litigation privilege were to attach to communications by the insured for the dominant purpose of gathering evidence and conducting the proceedings, but not to similar communications by insurers.

The court did leave open a question as to whether the entity claiming litigation privilege must have a “sufficient interest” in the contemplated proceedings, as it was satisfied that such a test would be satisfied on the facts of the case before it.  It commented that such a test would rarely be relevant as it would be rare that the dominant purpose test for litigation privilege is satisfied but the party claiming privilege is “essentially a stranger to the litigation”.

Alan Sheeley, civil fraud expert at Pinsent Masons, commented: “Businesses will welcome this clarity, particularly when embarking on investigations. For example, some sort of adversarial litigation may be reasonably contemplated, whether that be civil, criminal, or regulatory. However, it may not yet be possible to determine who the parties to any litigation will be.  It is of course still vital that, prior to embarking on any investigation, careful consideration is given as to what litigation may arise, the purpose of the investigation and how to structure it.  However, those conducting investigations will welcome this confirmation that the law does not impose a further requirement on them before litigation privilege can apply, namely that the business on whose behalf the investigation is being conducted will or may be party to the proceedings.”

Sheeley added, however, that, particularly given the court has left open the question of whether a “sufficient interest” in the litigation is required, “anyone conducting an investigation who has any doubt about whether their communications will attract privilege, or how best to achieve that, should seek specialist advice.”