When Is A Document Privileged?

The judgment of TMM Holdings (Pty) Ltd and Another v Skycastle Securities (Pty) Ltd and Others, which was delivered by the Gauteng Division of the High Court, Johannesburg is essential reading for litigation practitioners. The court had to determine whether certain documentation need not be disclosed, on the grounds that these documents were brought into existence or obtained for the dominant purpose of obtaining legal advice in or in contemplation of litigation.

Background

The court was dealing with an application to compel further and better discovery. In the underlying action, TMM Holdings (Pty) Ltd and Goldsol II (Pty) Ltd (“the Applicants”) had mandated Skycastle Securities (Pty) Ltd (“Skycastle”) to manage their investments. The Applicants alleged that Skycastle breached certain mandate agreements, causing the Applicants significant financial loss. It was common cause that a former director of Skycastle, Oliver Russell (“Russel”), was the primary wrongdoer. The Applicants also pursued claims against two other Skycastle directors, Paul Simon Johnson (“Johnson”) and Alain Michel Giraud (“Giraud”), for allegedly breaching their duties of care as directors.

The Applicants sought discovery of two categories of documents. The first comprised of insurance claim forms submitted by Skycastle to its insurer, Lombard Insurance Company Limited (“Lombard”), together with an investigative report prepared by Johnson and related correspondence. The second comprised of documents relating to Skycastle’s other clients and all materials which Johnson had considered during his investigation into Russell’s conduct. The disclosure of the documents to the Applicants was resisted on the basis of litigation privilege, as it was argued that the documents had been created for the dominant purpose of obtaining legal advice in or in contemplation of litigation.

Issues in dispute

The court was called upon to determine three principal issues:

• Whether the first set of documents (the insurance claim forms, Johnson’s report and related correspondence with Lombard) was protected by litigation privilege;
• Whether the second set of documents (Skycastle’s other clients’ documents and pre-existing materials collated for Johnson’s investigation) attracted the same protection; and
• Whether the second set of documents was, in any event, relevant to the issues raised on the pleadings.

Court’s findings

The court applied the established dominant purpose test. Under this test, litigation privilege attaches only where a document was brought into existence or obtained for the dominant purpose of use in existing or contemplated litigation. A document prepared for multiple purposes of equal or similar weight will not be protected under litigation privilege.

Regarding the first set of documents, the court found that Johnson provided no timeline, no explanation of why the report was needed for preparation for litigation and no detail as to the nature of the legal advice sought. The court held that the most obvious purpose of the report was to support Skycastle’s indemnification claim to Lombard and a further purpose was to investigate Russell’s wrongdoing. These purposes were at least equally, if not more, important than any litigation purpose. The privilege claim accordingly failed.

As to the second set of documents, having found that the report itself was not privileged, the court reasoned that it was difficult to see why pre-existing documents collated for the same mixed purposes, namely indemnification by an insurer and investigation, would fare any better. The privilege claim over the second set was likewise rejected.

On the question of relevance, the court applied the established broad discovery standard, finding that documents relating to Skycastle’s other clients could reveal a pattern of misconduct, making it more challenging for the directors to escape a finding of negligence under the Companies Act and FAIS Act duty-of-care provisions.

Conclusion

The court ordered that both sets of documents be delivered to the Applicants within 15 days of the court’s order. The Applicants were therefore successful and costs were ordered in their favour, including the costs of two counsel, taxable on Scale C.