Property Alliance Group v RBS: Deception prevents claim of Litigation Privilege

17 December 2015

Matthew Foote, Michael Brown

Bird & Bird & First for Disputes

On 20 November the latest judgment was handed down in the satellite litigation between Property Alliance Group Limited (PAG) and The Royal Bank of Scotland Plc (RBS) in their now long-running mis-sold swap contracts and LIBOR manipulation litigation. In this judgment the focus was on litigation privilege. If you would like details of the previous briefings produced by Bird & Bird relating to privilege and the above litigation please click here: DR Essentials know How Briefings.

RBS brought the application seeking:

  1. inspection of various audio recordings over which PAG was claiming litigation privilege; and
  2. the permission of the court (pursuant to CPR 31.20) to use an email over which PAG claimed privileged but which had been mistakenly disclosed to RBS. It was this email which had alerted RBS to the existence of the audio recordings.
The recordings

The requirements for establishing litigation privilege are well-known and were not in dispute. What was in issue between the parties was whether the recordings had been made for the 'dominant purpose' of conducting the litigation. The recordings were of various meetings involving the managing director of PAG (MD) and two former employees of RBS (who were employed by RBS at the time the swap contracts were entered into by PAG). 

At the time of the meetings with the MD, both former employees of RBS had thought that the MD was interested in starting a new business relationship with them at their respective new employers. The MD met the former employees separately and secretly recorded the conversations which took place. During the meetings the MD tried to ascertain whether the former employees would act as witnesses for PAG and assist PAG generally. Both employees refused.

PAG submitted that the recordings were subject to litigation privilege as they were akin to taking a proof of evidence from a potential witness. RBS argued that the dominant purpose of the meetings was for business, not to obtain legal advice, evidence or information for use in litigation. Birss J agreed with RBS. In his view, because the recordings were no more than an exact replica of the conversations held in the meetings, if the meetings between the MD and the former employees were not privileged then neither were the recordings. Therefore the court needed to analyse whether the meetings were privileged. To do this the court had to use an objective test to decide what the dominant purpose of the meetings was, taking into account all the evidence, including what the parties' intentions were at the relevant time the meetings were held.

It was clear that both the MD and former employees considered the purpose of the meetings to be different. The MD wanted to meet to gather information for the litigation, whereas the former employees wanted to discuss future business opportunities. What distinguished this case from the taking of a proof of evidence was the deception of the MD. Birss J held that in such circumstances the dominant purpose of the meetings should be considered from the viewpoint of the former employees and not the MD. Therefore the meetings were not privileged and neither were the recordings. Disclosure of the recordings was ordered.

The email

With regards to the inadvertently disclosed email, RBS did not dispute the claim to litigation privilege as the email was between a third party and a lawyer at the firm instructed by PAG, whilst PAG did not seriously oppose RBS' application under CPR 31.20. What PAG did dispute was the way RBS had used the email once it had been inadvertently disclosed.

It was clear that RBS had made extensive use of the email prior to receiving court permission allowing it to do so (the application seeking permission was accompanied by witness statements from the two former employees of RBS). Birss J stated that once received "it would have been obvious to any reasonable solicitor that the email was likely to be privileged and that a mistake was likely to have been made". The legal team representing RBS did not have permission to use the email until it had been given by the court, and although that permission was granted (the email indicating there may have been some serious non-disclosure by PAG of relevant documents), Birss J decided to sanction RBS for its conduct by way of costs.

Although arising in the context of a banking and finance case, the privilege principles considered by the court have universal application to any litigation. For parties in the process of disclosure, care should be taken to consider the circumstances in which a document was created, particularly if any issues, such as deception, might alter the way a court would view the document's dominant purpose. For parties in receipt of documents which a reasonable solicitor would consider may have been mistakenly disclosed, care should be taken, and permission from the court sought, before the documents can be used in the litigation.