UK: (Re)insurance Weekly Update 44-2016

Last Updated: 19 December 2016
Article by Nigel Brook

This Week's Caselaw

The RBS Rights Issue Litigation: High Court again considers who is the "client" for legal advice privilege and whether Three Rivers can be distinguished/choice of law governing privilege issues

http://www.bailii.org/ew/cases/EWHC/Ch/2016/3161.html

The defendant sought to claim legal advice privilege over transcripts and records of interviews which took place between its in-house lawyers and its employees (and ex-employees) before litigation was in contemplation. Privilege was claimed on the basis that the employees had been authorised to communicate with the lawyers for the purpose of his or her employer seeking legal advice.

This issue required an examination of the Court of Appeal's decision in Three Rivers (No.5) [2003] and the meaning of who is the "client" for the purpose of legal advice privilege. This case is the second High Court decision in three weeks to consider this question.

In Three Rivers (No. 5) [2003], the Court of Appeal ruled that not all officers and employees within a company should be treated as the "client" for the purposes of legal advice privilege. Only those employees within the organisation who are dealing with the matter on which the lawyer is giving advice will be the "client". No privilege will attach to communications passing between the lawyers and anyone else within the organisation outside the nominated group. This is of particular practical importance where in-house or external lawyers are seeking factual information about a problem from employees within the client organisation before litigation is in reasonable prospect.

In Astex Therapeutics v Astrazeneca (see Weekly Update 41/16), Chief Master Marsh reaffirmed the position in Three Rivers (No 5), holding that only interviews which took place with employees who could be said to be the "client" for the purposes of giving instructions (eg board members) would be covered by the privilege. However, no reference was made to the 2014 High Court decision of AB v Ministry of Justice (see Weekly Update 22/14), in which Baker J sought to distinguish Three Rivers (No.5) on the basis that in that case the client organisation itself had chosen to arrange its affairs so that only a separate group was specifically responsible for seeking legal advice. Baker J suggested that the position would be different where no separate entity had been established but instead an individual within the client organisation was authorised to seek and receive legal advice.

No reference was made to AB v Ministry of Justice in this case either, but Hildyard J noted that there has been academic criticism and disapproval in other jurisdictions of Three Rivers (No.5), in particular in the Court of Appeal in Singapore. He saw "force in these criticisms and attempts to confine the application of the decision in Three Rivers (No 5)" to its particular facts. He also said that "It may be that in a suitable case the Supreme Court will have to revisit the decision".

Nevertheless, he was bound by Three Rivers (No 5) and pointed out that the House of Lords in Three Rivers (No 6) had declined the invitation to express a view on this fundamental issue, when the argument was put to it: "There can be no real doubt as to the present state of the law in this context in England: Three Rivers (No 5) confines legal advice privilege to communications between lawyer and client, and the fact that an employee may be authorised to communicate with the corporation's lawyer does not constitute that employee the client or a recognised emanation of the client". Only those employees who are authorised to communicate with the company's lawyers in order to seek or receive legal advice will be the "client" for the purpose of claiming legal advice privilege.

The judge further suggested that "It may also be that in a corporate context only individuals singly or together constituting part of the directing mind and will of the corporation can be treated for the purpose of legal advice privilege as being, or being a qualifying emanation of, the 'client'". However, given his conclusion that legal advice privilege could not be claimed in this case, it was unnecessary for him to rule on this question.

A further argument raised by the defendant was that the interview notes were privileged lawyers' working papers. It was common ground that in English law, lawyers' working papers are privileged on the basis that they might give a clue to the advice which had been given by the solicitor.

However, verbatim transcripts of unprivileged interviews (and the interviews here were not privileged) would themselves not be privileged. The factual issue here, therefore, was whether the notes had "some attribute or addition such as to betray or at least give a clue as to the trend of advice being given to the client by its lawyer". The judge held that they did not.

The defendant's argument "does not address the objection that it cannot be that the mere fact that a note is not verbatim, and therefore may betray some selection or line of enquiry ...., suffices. Something more is required to distinguish the case from the norm.....My conclusion is reinforced by the consideration that there is a real difference between reflecting "a train of inquiry" and reflecting or giving a clue as to the trend of legal advice" (emphasis added).

A further issue which had been raised by the defendant was which law governed the issue of privilege here. That was because the position in the US would possibly have been more favourable for its claim to privilege. The defendant suggested that the court was not bound by authority to apply the law of the forum (ie England) and instead proposed a new choice of law rule, which would apply the law of the place with which the engagement or instructions, pursuant to which the documents came into existence or the communications arose, have their closest connection (which would, in this case, have resulted in the application of US law).

Although the judge saw some force in the defendant's argument, nevertheless, the conventional understanding that the law of the forum applies had not been displaced.

Accordingly, the defendant was not entitled to claim legal advice privilege over the interview notes.

Bellman v Northampton Recruitment: Judge rejects finding of vicarious liability following altercation at a post-works event

http://www.bailii.org/ew/cases/EWHC/QB/2016/3104.html

In order to succeed in a claim for vicarious liability against a company, there must be (1) the necessary relationship between the company and the wrongdoer and (2) the necessary connection between that relationship and the wrongdoer's conduct. In the recent Supreme Court decision of Muhamud v VM Morrison Supermarkets (see Weekly Update 9/16), the Supreme Court held that two matters should be considered: (a) what functions or "field of activities" have been entrusted by the employer to the employee (and this question should be addressed broadly); and (b) was there a sufficient connection between the position in which he was employed and his wrongful conduct to make it right for the employer to be held liable for reasons of social justice.

In Muhamud, the Supreme Court found that the attack by the employee was within the "field of activities" assigned to him, because he had been dealing with customers at the time, and the attack resulted from an "unbroken sequence of events" (even though he performed those activities in an inexcusable manner). By contrast, there was no finding of vicarious liability where the employee in Warren v Henlys [1948] attacked a customer who had left the premises and later returned to make a complaint.

In this case, the employee attacked another employee at a spontaneous post-Christmas party drinks at a hotel near the Christmas party venue. HHJ Cotter QC held that:

(1) It couldn't be said that the employee was "on duty" just because he was in the company of other employees at the time.

(2) The assault was not committed during the organised work social event. There was a substantive difference between the Christmas party and the later impromptu drinks and the latter was not a "seamless extension" of the former: "In substance what remained were hotel guests, some being employees of the Defendant some not, having a very late drink with some visitors".

(3) Although the words spoken by the wrongdoer and claimant were important, there was no support for the proposition that "merely raising something that relates to duties at work has the effect of itself of changing a conversation or interaction between fellow workers into something in the course of employment, regardless of the surrounding circumstances".

(4) Nor did social justice require a finding of vicarious liability here: "The rule must have proper boundaries; it is not endless...to find its application here would be to foist the Defendant, in reality its insurer, with an undue burden and would effectively make it what as McLachlin J described as "an involuntary insurer".

COMMENT: This case, one of the first to comment on Muhamud, has emphasised the importance of timing when considering if a defendant is vicariously liable for the wrongdoing of its employee. Had the assault taken place at the Christmas party, rather than after it, the defendant would most probably have been found liable. As the judge put it: "the organised event at the Golf Club had ended and as a result the expectation or obligation on any employee to participate had ended. .. There was not only a temporal but a substantive difference between the Christmas party at the Golf Club and the drinks at the Hilton Hotel".

Bank of Baroda v Nawany Marine: Court cures defective service where insufficient copies of the claim form were served

http://www.bailii.org/ew/cases/EWHC/Comm/2016/3089.html

The claimant purported to serve proceedings on the UAE and Indian defendants by serving process agents appointed by the defendants as agents for service. It was common ground that each defendant should have been served with a separate original claim form and response pack. However, here, only one copy of the claim form was served. The claimant accepted that service had therefore been defective.

The judge rejected an argument that a Part 11 jurisdiction challenge cannot be used to challenge service: "any challenge to jurisdiction (including service) should proceed by way of Part 11 challenge". Furthermore, it could not be said that a challenge had been waived because the defendants had filed an Acknowledgment of Service: this was not a case like "The Conti Cartagena" [2014], where the acknowledgment of service was made before service had ever been effected (and there therefore could be no dispute as to the effectiveness of service).

However, the judge held that this was a case where CPR r3.10 (which provides that the court may make an order to remedy an error of procedure) operated. The defect had no prejudicial effect here, since the defendants had been effectively informed that proceedings had been commenced against them. Nor was there any limitation issue, and so another claim form could just be issued and served, which would be "a triumph of form over substance". Furthermore, "this is a case where a procedural step was taken defectively rather than omitted or performed directly contrary to a rule. So although on one analysis one might say that service on some of the Defendants was omitted in the absence of sufficient Claim Forms, the covering letter makes clear that service was being attempted to be effected against all the Defendants. Effectively some of the procedural boxes were ticked, but others were not".

Fehily v Atkinson: Judge clarifies the test for mental capacity

http://www.bailii.org/ew/cases/EWHC/Ch/2016/3069.html

The judge in this case was required to confirm the correct test for whether someone has the mental capacity to enter into a transaction. It was suggested that the following test laid down in Chitty is wrong: "At common law, the understanding and competence required to uphold the validity of a transaction depend on the nature of the transaction. There is no fixed standard of mental capacity which is requisite for all transactions. What is required in relation to each particular matter or piece of business transacted, is that the party in question should have an understanding of the general nature of what he is doing".

It was suggested that "understanding of the general nature of what he is doing" understates the degree of comprehension required.

The judge summarised the general principles relevant to ascertaining mental capacity. He confirmed that what is important is whether the person had the ability to understand the transaction, not whether he/she actually understood it. Furthermore, "in a case where a person needs advice and assistance to enable them to understand the transaction, the question of capacity is to be assessed by reference to the complexity of the transaction proposed, and the advice and assistance that they need to understand it, not the advice and assistance that they actually received". Accordingly, the test in Chitty was wrong insofar as it directs attention to the understanding that the person actually has, rather than the understanding which he/she would be capable of having if given the advice and assistance that they need.

The judge went on to find that the summary in Chitty was otherwise accurate: "although it would be possible to misinterpret it as only requiring the capacity to form a general impression of the nature of a contract, rather than the capacity to absorb, retain, understand, process and weigh information about the key features and effects of the contract, and the alternatives to it, if explained in broad terms and simple language" (the latter being the correct test). It was therefore not necessary for the person to have capacity to understand every detail of the proposed transaction.

(Re)insurance Weekly Update 44-2016

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