Litigation privilege and the disclosure of investigatory reports

In 2017 Andrews J in Serious Fraud Office v Eurasian Natural Resources Corp said “the general trend has been towards strictly confining, rather than extending, the ambit of litigation privilege”.  Overturning her decision on litigation privilege (but not her rejection of ENRC’s claim to legal advice privilege) the Court of Appeal took a more generous interpretation of the test for litigation privilege.

The latest decision to comment on this area of law is Kyla Shipping Co Ltd v Freight Trading Ltd. It is of particular interest and carries weight because the judge was Charles Hollander QC, the author of one of the key texts on disclosure and privilege.

Before looking at what was said in Kyla, we review the test for claiming litigation privilege and some of the scenarios in which this issue arises.

When is a document protected by litigation privilege?

A document is protected by litigation privilege if it is made:

• Confidentially
• Between a lawyer and a client, a lawyer and a third party, or a client and a third party
• For the dominant purpose of conducting or aiding the conduct of actual litigation or litigation which is reasonably in prospect
• In litigation that is adversarial, not investigative or inquisitorial

When is litigation reasonably in prospect?

In USA v Philip Morris the Court of Appeal held that, for litigation privilege to apply, the party must be aware of circumstances which render litigation between them and a particular person or class of persons a real likelihood rather than a mere possibility. Subsequently, in Westminster International BV v Dornoch Ltd the Court of Appeal said that the chance of litigation does not have to be greater than 50 per cent.

The dominant purpose test

This is generally the harder part of the test to satisfy. Where an internal investigation report is prepared with two purposes of equal weight – to obtain legal advice in anticipation of litigation arising from the accident or incident and also to answer concerns about safety or compliance with internal practices – the dominant purpose test will not be satisfied and the report will be disclosable in subsequent litigation (Waugh v British Railways Board).

A simple way of approaching the dominant purpose test is to ask whether the facts in the report need to be established whether or not litigation ensues. If they do, the report is unlikely to be privileged.

The Court of Appeal in Re Highgrade Traders introduced the idea of a single wider purpose satisfying the dominant purpose test in the context of insurance claims. We discuss the development of this line of authority below.  

Internal reports following an accident or incident

Waugh v British Railways Board established that the administration of justice usually requires contemporaneous reports inquiring into an accident, containing statements by witnesses on the spot, to be disclosed in subsequent proceedings. This will be the case when the report is required by statute or regulation (Re Barings Plc) and also where the investigatory report is required by the party’s own code of practice, as was the case in Waugh.

West London Pipeline and Storage Ltd v Total UK Ltd, the litigation arising out of the explosion at Buncefield oil depot in Hertfordshire in 2005, is a good illustration of the difficulties faced by a defendant resisting disclosure of internal documents such as records of interviews and health and safety investigation reports following an accident.

Loss adjusters’ and expert reports following a casualty

In Re Highgrade Traders Ltd insurers obtained a report into the cause of a fire to ascertain its cause (suspected to be arson) and to determine whether the insurance claim could be resisted.  The Court of Appeal held that the two purposes could not be separated but constituted a "single wider purpose”. Where insurers commission reports following a serious incident they are not doing so for academic interest but in order to decide whether to reject an insurance claim. In such a context, there is in reality one purpose since litigation will inevitably follow if insurers reject the claim.

This approach was followed in Westminster v Dornoch, where shipowners claimed for a constructive total loss following a collision. The Court of Appeal held that the defendant insurers were entitled to refuse to disclose a report prepared by surveyors instructed to comment on the claimant’s survey report.  (For a case where the Highgrade approach was not followed in a reinsurance context, see Axa Seguros v Allianz.)

Preliminary investigations

The courts have rejected claims to litigation privilege over reports commissioned from accountants, whether to investigate a potential entitlement to deferred consideration following a business sale (Starbev GP Ltd v Interbrew Central European Holding BV), or to investigate an alleged conspiracy with a view to sharing the report with financial regulators (State of Qatar v Banque Havilland SA). The dominant purpose test still has to be satisfied even if litigation is anticipated. The purpose of the professional third party’s retainer may change over time – the privileged status of their reports depends on the purpose of the instruction when it is given.

Single wider purpose in other contexts

Highgrade was followed by the Court of Appeal in SFO v ENRC, a case concerning an internal investigation by ENRC in the face of scrutiny by the Serious Fraud Office. The court rejected the suggestion that there is a tension between Waugh and Highgrade, stating that the decisions reached different conclusions for fact specific reasons.

The Court of Appeal accepted that the position was not clear cut in ENRC but concluded that “the need to identify the cause of the fire in Highgrade or to investigate the existence of corruption in this case was just a subset of the defence of contemplated legal proceedings”. The court made no reference to the public policy in Waugh (given weight by Andrews J) that litigation privilege should be rigidly confined within narrow limits.  Instead the court referred to the public interest that companies should be prepared to investigate allegations from whistle-blowers or journalists without losing the benefit of privilege for the investigation. The court’s generous approach to litigation privilege was no doubt also influenced by the limited circumstances in which a company can rely on legal advice privilege because of the unsatisfactory decision of the Court of Appeal in Three Rivers (No 5).

What did Charles Hollander QC say?

To return to the latest case about litigation privilege, Charles Hollander QC said the following in Kyla about Sothebys v Mark Weiss, a case concerning the sale of a potentially forged Franz Hals painting and the disclosure of correspondence with an expert:

“Teare J held, rejecting the claim to litigation privilege, that the correspondence had two purposes: one to decide whether the painting was a fake and whether to rescind, a second to enable Sothebys to defeat the arguments of Mark Weiss in the anticipated litigation.  The decision is fact specific, but I would point out that the facts bear a real similarity to Re Highgrade Traders Ltd … it is not obvious that the two purposes of Sothebys were other than two aspects of the same purpose.”

Where does this leave us?

The importance of Highgrade has certainly had a boost since the Court of Appeal’s endorsement of the “single wider purpose” approach in ENRC and the recent influential comment in Kyla. It is also worth noting that Sir Geoffrey Vos (now the Master of the Rolls) was in the Court of Appeal in ENRC as well as the judge in Bilta (UK) Ltd v RBS where he applied the “single wider purpose” approach in the context of a threatened assessment by HMRC against RBS in respect of overclaimed VAT of more than £86 million. In Bilta he emphasised the fact that determining the dominant purpose of an investigatory report is a question of fact and “that one has to take a realistic, indeed commercial, view of the facts”.

We can anticipate that the courts will follow this lead and that it may therefore have become easier to claim litigation privilege over an investigatory report, as long as it was not required by statute or regulation, or the party’s internal practices.  Careful consideration of the facts by judges in Axa Seguros, Starbev, Sothebys and Qatar led to the conclusion that the dominant purpose test had not been satisfied and that investigatory reports should be disclosed. It will be interesting to see whether judges are more relaxed about allowing claims to litigation privilege in future.   

See our briefings on some of the cases mentioned above:

Litigation privilege - not so easy to come by

It’s a privilege or is it …?

Disclosure of correspondence with an expert

A refresher on litigation privilege in the light of Qatar v Banque Havilland