It is generally accepted that litigation privilege will only
apply in circumstances where legal proceedings are already in
existence or are reasonably contemplated.
However, what happens in the event when a third party expert is
instructed to provide support for a specific claim and during their
investigations (of the documents/correspondence provided) they
uncover a further claim, completely unrelated to the claim they
were instructed to support. Can litigation privilege be claimed
over all the correspondence with the third party expert /
instructing party?
There is no authority on this subject in the Bailiwick of Guernsey,
however, according to the decision in Kyla Shipping Co Ltd
& Anor v Freight Trading Ltd & Ors [2022] EWHC
376 (Comm) (22 February 2022) ("Kyla Shipping
Co"), the answer is no.
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In Kyla Shipping Co there had was a shareholder dispute which
concerned the distribution of insurance proceeds following the
total loss of a vessel owned by the first claimant (the
"Shareholder Dispute"). During the same
period certain grievances were raised in respect to certain freight
forwarding agreements ("FFAs") (in light
of correspondence during 2018 relating thereto) and a further
potential dispute arose which concerned the settlement of exposure
under this FFAs (the "Mismanagement
Claim"). As a result, the claimants (via their
solicitors) thought it appropriate to instruct an expert to audit
these and to provide support for the Mismanagement Claim. The
Mismanagement Claim was not subject to legal proceedings at the
time. During the expert's audit, a new suspected claim emerged
regarding the basis on which the FFAs were entered into (the
"Mispricing Claim").
It was accepted that litigation was in reasonable contemplation in
relation to the Shareholder Dispute and that litigation privilege
may be claimed for documents created for the dominant purpose of
that dispute. What was in dispute was the litigation privilege
claimed over the other two potential claims and the documents
created in relation thereto.
According to the claimants, the Mispricing Claim was discovered
following on from the instruction of the expert and the further
enquiries arising from it (in relation to the Mismanagement Claim)
and therefore were protected by litigation privilege, as litigation
regarding the FFAs was reasonably contemplated by late 2018. The
Defendants, on the other hand, asserted that the purpose of the
instruction was to see whether there was any legitimate grievance
in respect of the FFAs.
The question considered by the High Court was therefore whether or
not litigation privilege can be claimed for the experts audit and
intervening events (termed the "ballast exercise"), prior
to the crystallisation and discovery of the Mispricing Claim. This
question had to be answered having due regard to:
- Whether the documents/correspondence/information was created for the dominant use in litigation; and
- Whether that litigation was in reasonable contemplation.
Dominant Purpose And Reasonable
Contemplation
In Ashton v. Ansol Ltd (Guernsey Judgment 9/2003) Hancox, Lieut.
Bailiff said "...In order for litigation privilege to
apply, there must be a confidential communication between client
and lawyer or lawyer and agent, or between one of these and a third
party made for the dominant purpose of use in
litigation; that is to seek or provide information or
evidence to be used in or in connection with litigation in which
the client is a party. (Own emphasis)".
Essentially, the document in question must be created for the
dominant purpose of conducting litigation in reasonable
prospect.1
The party claiming privilege must establish that litigation was
reasonably contemplated or anticipated at the time. It is not
sufficient to show that there is a mere possibility of litigation,
or that there was a distinct possibility that someone might at some
stage bring proceedings, or a general apprehension of future
litigation (however this not necessarily mean a 50% or greater
chance. In United States v Philip Morris2, the judge
had said that the person seeking to claim privilege must show that
he was aware of circumstances which rendered litigation between
himself and a particular person or class of persons a real
likelihood rather than a mere possibility.
It is not enough for a party to only show that proceedings were
reasonably anticipated or in contemplation. The party must also
show that the relevant communications were for the dominant purpose
of either (i) enabling legal advice to be sought or given, and/or
(ii) seeking or obtaining evidence or information to be used in or
in connection with such anticipated or contemplated proceedings3.
An assertion of privilege and a statement of the purpose of the
communication over which privilege is claimed in a witness
statement are not determinative and are evidence of a fact which
may require to be independently proved. The dominant purpose test
derives from Waugh v British Railways Board4 where
the House of Lords regarded it as insufficient that a document was
prepared for two equal purposes if only one of those was a
privileged purpose.
The High Court's Finding
Having considered the previous authority on this subject and the
limited evidence provided by the claimant (by affidavit) it was
determined by the High Court that there was no suggestion in the
correspondence that proceedings or a counterclaim in proceedings
was envisaged in relation to the Mismanagement Claim.
The High Court said, in light of its assessment of the limited
explanation provided by the claimant, the instruction of an expert
appeared to have been for the purpose of trying to provide backing
for the Mismanagement claim, but it does not seem to have reached a
stage where it was possible to say that litigation in relation to
the Mismanagement claim was in reasonable prospect. Litigation
privilege may therefore not be claimed for the Mismanagement Claim
but may be claimed when litigation was in reasonable contemplation
in respect of the Mispricing Claim.
Conclusion
This case provides a useful reminder that legal professional
privilege is not as straight forward as one would hope and that
careful regard should always be had to the test for litigation
privilege and instances when it may or may not apply. In
particular, parties must be mindful that any investigations by a
third party / expert to determine whether a party has a potential
claim do not ordinarily attract litigation privilege. This is
because there is no reasonably contemplated litigation in relation
to the potential (or suspected) claim at the time of the
investigations. This adopts the strict litigation privilege test
borne out by authority and great care must be taken in these
cases.
Parties are also reminded that when making a claim for litigation
privilege cogent evidence must be provided by the claimant that
litigation is in reasonable contemplation and that the document was
created for that dominant purpose.
Because there is no authority on this subject in Guernsey, it is
likely that the Kyla Shipping Co Decision will
be considered persuasive authority before the Royal Court.
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.