UK: Determining Dominant Purpose For Litigation Privilege After ENRC

Last Updated: 21 December 2018
Article by Daren Allen, Felicity Ewing, Thomas Leyland and Tanya Alfillé

For a document to be protected by litigation privilege, it must have been produced for the sole or dominant purpose of obtaining information or advice in connection with existing or contemplated litigation. That principle and, in particular, the "dominant purpose" test was scrutinised by the Court of Appeal in its recent decision in the ENRC case: Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006. In two decisions concerning litigation privilege since then, the courts have considered the dominant purpose test in light of ENRC: WH Holding Ltd, West Ham United Football Club Ltd v. E20 Stadium LLP [2018] EWCA Civ 2652 and Sotheby's v. Mark Weiss Limited & others [2018] EWHC 3179 (Comm). In neither case were the courts persuaded that ENRC assisted in the assessment of dominant purpose.

ENRC and dominant purpose

Litigation privilege

In ENRC, one of the issues the Court of Appeal considered was whether certain documents were protected by litigation privilege (a summary of the decision can be found here). The documents had been generated in the context of internal investigations undertaken by the company's lawyers and forensic accountants in response to allegations of corruption and fraud notified to it by a whistle-blower. The SFO investigated the company with a view to pursuing a possible criminal prosecution and successfully challenged the company's claim that the documents were subject to legal professional privilege. The company appealed.

The requirements of litigation privilege were set out by Lord Carswell in Three Rivers DC v. Governor and Company of the Bank of England (No 6)[2004] UKHL 48. This stated that:

"... communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:

(a) litigation must be in progress or in contemplation;

(b) the communications must have been made for the sole or dominant purpose of conducting that litigation; and

(c) the litigation must be adversarial not investigative or inquisitorial."

Having found that litigation was reasonably in contemplation when the company initiated its internal investigation, the Court of Appeal in ENRC turned to the dominant purpose test (as set out in the second condition). The court considered two aspects of the test: first, what was encompassed by the purpose of "conducting" litigation; and second, the determination of dominant purpose where a document was created for more than one purpose.

Conducting litigation

The issue was whether documents created to obtain legal advice on how to avoid contemplated litigation could be said to be for the dominant purpose of conducting that litigation. The Court of Appeal decided that legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings was as much protected by litigation privilege as advice given for the purpose of resisting or defending such proceedings; it made no difference that the proceedings were contemplated rather than ongoing.

Determining dominant purpose

The next issue was to determine the dominant purpose of documents generated in the context of the company's internal investigation: ascertaining the facts for compliance and governance reasons or conducting the contemplated litigation.

The court answered this by looking at the motivation for the investigation, suggesting that the "stick" used to enforce appropriate standards in the conduct of a company's business was the criminal law. Where there was a clear threat of a criminal investigation, therefore, the reason for investigating whistle-blower allegations must be "brought into the zone where the dominant purpose may be to prevent or deal with litigation", rather than being viewed as a separate purpose. The need to investigate the existence of corruption was just a subset of the defence of contemplated legal proceedings.

The West Ham case

This was an appeal in the context of a dispute between West Ham and E20 about the number of seats West Ham was entitled to use at the former London Olympic Stadium under a contract with E20. West Ham had applied for disclosure of six emails which E20 had withheld from inspection. E20 asserted that the emails, passing between its board members and between them and third parties, were subject to litigation privilege on the grounds that they had been created with the dominant purpose of discussing commercial proposals for settling the dispute between the parties when litigation was in reasonable contemplation.

The judge at first instance held that the emails were protected by litigation privilege. West Ham appealed.

The scope of litigation privilege

The main issue on appeal was whether litigation privilege extended to documents which were concerned with the settlement of litigation, but did not seek advice or information for the purpose of conducting litigation.

Much of the debate centred on the meaning of the phrase "conducting litigation". Relying on the ENRC decision, E20 argued that "conducting litigation" encompassed avoiding or settling litigation. The Court of Appeal agreed that ENRC had made it clear that "conducting litigation" covered legal advice given to "head off, avoid or even settle" such litigation. However, there was no authority or justification for extending the scope of litigation privilege to purely commercial discussions about settlement, and it was wrong to suggest that ENRC went that far. The disputed documents in ENRC fell within the recognised categories of advice or information obtained in connection with existing or contemplated litigation; the dominant purpose test, requiring such documents to be for the sole or dominant purpose of conducting such litigation, did not extend that principle, but rather restricted it.

The court accepted that documents in which such information or advice could not be disentangled or which would otherwise reveal such information or advice were covered by the privilege. However, it concluded that documents created with the dominant purpose of discussing a commercial settlement (as opposed to obtaining information and advice) did not fall within the scope of litigation privilege.

The Sotheby's case

Mark Weiss Limited (the seller) appointed Sotheby's as exclusive agent to sell a painting purported to be by the Dutch artist Frans Hals. Sotheby's sold the painting by private treaty in June 2011. The sale contract included a term by which Sotheby's offered to rescind the sale and repay the purchase price 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 a counterfeit.

In 2016, having considered the opinions of two experts, Sotheby's concluded that the painting was a counterfeit. It therefore rescinded the sale and repaid the buyer. Sotheby's commenced proceedings against the seller, seeking rescission of their contract and the return of the purchase price.

The seller applied for inspection of correspondence between Sotheby's (and its lawyers) and the two experts, which Sotheby's claimed was protected by litigation privilege.

Sotheby's claim to litigation privilege

Sotheby's argued that litigation was in prospect once its expert had taken a negative view about the authenticity of the painting. At that point, Sotheby's lawyers wrote to the expert, explaining that all subsequent correspondence with him was in the context of anticipated litigation and so privileged. They advised him to mark any correspondence as "Prepared in anticipation of litigation: Legally Privileged".

Following the expert's initial view, Sotheby's instructed him to produce a formal report of his findings. They also instructed a second expert to conduct a peer review of the report. Sotheby's argued that its communications with both experts concerning these reports were privileged as they were for the dominant purpose of being deployed in the anticipated litigation.

Dual or dominant purpose?

While the court agreed there was no doubt that litigation with the seller was contemplated, it found on the evidence that the correspondence with the experts had had two purposes:

  • to enable Sotheby's to decide whether the painting was a counterfeit and, if so, to rescind the sale (under its contract with the buyer); and
  • to assist Sotheby's case in the anticipated litigation.

That dual purpose was reflected in Sotheby's letter of instruction to the expert, which stated that all correspondence "... is in the context of [the] anticipated litigation to enable Sotheby's to understand the strengths and weaknesses of its position and to make the right legal and commercial decision in anticipation of that potential litigation ...".

Both purposes were clearly important to Sotheby's, but the judge found that it had been unable to show that the anticipated litigation was the dominant purpose of the correspondence. In particular, the court rejected Sotheby's argument that it was unrealistic to suggest that the communications with the experts would have existed had there been no threat of litigation. It was clear from the evidence that before Sotheby's could embark on litigation to recover the sale price from the seller, it had to be sure that it was entitled to rescind the sale.

The court did not accept the suggestion that the decision in ENRC had changed or clarified the law in relation to cases where a document was brought into existence for two purposes, one of which was for use in litigation. It rejected Sotheby's argument that the position was analogous to that in ENRC. The contemplated litigation could not be said to be a "stick" in the sense used in ENRC, motivating the correspondence with the experts so that its dominant purpose could be regarded as assisting Sotheby's in the litigation. In any event, the assessment of dominant purpose was fact sensitive so it would be unsafe to use the analysis in ENRC to assist in determining the dominant purpose in this case.

Comment

Although ENRC has provided clarification on aspects of the dominant purpose test and, in particular, confirmation that the conduct of litigation includes its avoidance or settlement, the determination of dominant purpose is a determination of fact and must be assessed on the facts of each case.

Labelling a document as "privileged" will obviously not ensure that it is protected, and a court will look at all the evidence to determine the actual intention of the party claiming privilege. In the Sotheby's case it was not sufficient that Sotheby's lawyers considered that the purpose of their correspondence with the experts was for conducting the litigation that they rightly anticipated; the court looked at all the evidence, including the terms of Sotheby's contract with the buyer and the terms under which it instructed the expert, and was satisfied that its lawyers had misconceived the character of the documents. As this and other decisions in this area demonstrate, determining the dominant purpose of a document is a difficult call.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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