UK: Litigation Privilege: High Court Decision Shows Continued Need To Beware Of Dual Purpose

Last Updated: 4 December 2018
Article by Herbert Smith Freehills

The High Court has found that correspondence with experts was not subject to litigation privilege as it was prepared for two purposes, only one of which was for contemplated litigation, and the claimant had not established that the litigation purpose was dominant: Sotheby's v Mark Weiss Ltd [2018] EWHC 3179 (Comm).

The other purpose, the court found, was to take a commercial decision as to whether to rescind the sale of a painting. Although a decision to rescind would likely, perhaps inevitably, lead to litigation, the court found that the two purposes could not be regarded as one and the same. This would appear to contrast with cases such as Highgrade Traders [1984] BCLC 151, in which the Court of Appeal accepted that the purpose of considering whether an insurance claim could be resisted (in a case of suspected arson) was a litigation purpose, and what might appear to be a separate purpose (namely, to ascertain the cause of the fire) was part and parcel of that purpose.

However, the court in the present case rejected the attempt to draw an analogy with Highgrade, or with the recent Court of Appeal decision in SFO v ENRC Ltd [2018] EWCA Civ 2006, considered here, which had appeared to return to a more benevolent approach to the question of whether there is a dual purpose, in the context of litigation privilege, following the very strict approach taken at first instance in that case.

The present decision emphasises the fact-sensitive nature of the assessment of dominant purpose, and that the court's analysis in one case cannot necessarily be applied in different circumstances. This underlines the difficulty for commercial parties in assessing, in any case where a document or communication may be seen as having a dual purpose, whether or not it will be protected by litigation privilege.

Background

The claimant, Sotheby's, was appointed as the defendant's exclusive agent to sell a painting by private treaty. The sale contract with the buyer provided that the sale would be rescinded and the purchase price returned if the buyer provided written evidence raising doubts as to the authenticity or attribution of the painting, and Sotheby's determined that the painting was counterfeit. The buyer did so, a report having been obtained from an expert, Mr Martin.

Sotheby's commissioned a second expert, Mr Twilley, to conduct a peer review of Mr Martin's report. Having considered these reports, Sotheby's determined that the painting was a counterfeit, rescinded the sale and returned the purchase price to the buyer. Sotheby's then brought proceedings seeking rescission of its contract with the defendant and repayment of the purchase price.

The defendant brought an application for inspection of the correspondence passing between Sotheby's and the two experts, which had been withheld on grounds of litigation privilege.

Decision

The High Court (Teare J) rejected the claim to privilege and ordered that the correspondence be provided for inspection.

There was no dispute as to the test for establishing a claim to litigation privilege, namely that the correspondence must have been brought into existence for the "dominant purpose" of litigation which was in reasonable contemplation.

The judge rejected Sotheby's suggestion that the Court of Appeal's decision in ENRC had changed the law in cases where a document was created for two purposes, one of which was for use in litigation. On the contrary, he said, the Court of Appeal had confirmed the classic statement of principle in Waugh v British Railways Board [1980] AC 520 to the effect that unless litigation is (at least) the dominant purpose, litigation privilege cannot apply.

Teare J referred to the evidence provided by Sotheby's solicitor in support of the claim to privilege, which included the following:

  • "All the way through the preparation of the report, the fact that the matter was likely to end up in court (if the report could not be used to persuade the other side to settle) was the perspective from which the report was being prepared by all parties..."
  • "[Sotheby's solicitors] were advising on the report, and on its role in the forthcoming decision as to whether to rescind (which would almost inevitably result in proceedings being issued), from the perspective of how it would be used as evidence in the litigation."
  • "... had litigation not been contemplated, then findings from Mr Martin would have been sought, but no detailed written report of this kind would have been embarked upon and [Sotheby's solicitors] would not have been engaged to undertake this exercise with Mr Martin."

Teare J said he did not find this explanation easy to accept. There was no doubt that litigation was contemplated. However, it was also contemplated that Sotheby's would, in the context of its agreement with the buyer, need to determine whether the painting was counterfeit and, if so, rescind the sale and return the purchase price – thus the reference in the above to the "forthcoming decision as to whether to rescind."

Assessed objectively, Teare J concluded, the correspondence took place for two purposes: first, to enable that decision to be taken; and, second, for use in the contemplated litigation. Both purposes appeared to be of equal importance and relevance, or in any event Sotheby's was unable to establish that the litigation purpose was dominant. A similar conclusion was reached in respect of the correspondence with Mr Twilley.

The judge considered Sotheby's attempt to draw an analogy with ENRC, in which the Court of Appeal had considered whether the dominant purpose behind the creation of documents in an internal investigation was to investigate the facts to see what had happened and deal with compliance and governance issues or to defend a contemplated criminal prosecution, and had concluded it was the latter. The Court of Appeal in that case stated:

"Although a reputable company will wish to ensure high ethical standards in the conduct of it business for its own sake, it is undeniable that the 'stick' used to enforce appropriate standards is the criminal law.... Thus, where there is a clear threat of a criminal investigation..., the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation."

Sotheby's submitted that the present case was analogous to ENRC, in that litigation would inevitably follow from the commercial decision, and that litigation was the "stick" which motivated the correspondence, so that the dominant purpose of the correspondence was to assist Sotheby's in the litigation.

Teare J rejected this argument, commenting that the assessment of dominant purpose is fact sensitive and so "it is unsafe to use the determination of dominant purpose in one case to assist in identifying the dominant purpose in another". The "stick" analogy was, he said, no doubt appropriate in ENRC where criminal proceedings were used to enforce appropriate standards of corporate governance, but in the present case civil proceedings were not a "stick" in the same sense. He added:

"I do not read the ENRC case as deciding that whenever litigation is the 'inevitable' consequence of taking a particular commercial decision, the dominant purpose of documents produced for the making of that decision is necessarily their use in the contemplated litigation."

The judge similarly rejected Sotheby's attempt to rely on the decision in Re Highgrade Traders [1984] BCLC 151, in which the Court of Appeal considered a report commissioned by insurers into the cause of a fire where arson was suspected. The court in that case concluded that what appeared to be two purposes, namely to inform the insurers' solicitors as to whether the insurance claim could be resisted and to ascertain the cause of the fire, were all part of a single overarching purpose. By contrast, Teare J said, in the present case there were two purposes which "could not in a realistic and commercial sense be regarded as one and the same".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions