UK Court of Appeal clarifies scope of litigation privilege in circumstances where parties are seeking the commercial resolution of prospective litigation

In WH Holding Limited and anor v E20 Stadium LLP[1], a dispute over the number of seats West Ham was entitled to use in the London Olympic Stadium for its home football matches, West Ham applied for the Court to inspect a number of documents in which E20 had asserted privilege. Following dismissal of the application, West Ham appealed on three grounds:

1. whether the scope of litigation privilege extended to documents prepared for commercial settlement discussions;
2. in what circumstances the Court should undertake inspection (a procedural matter that we will not look at here); and
3. how the purpose of documents should be evaluated where there are multiple forms of dispute resolution available to the parties.

In considering these three issues, the Court of Appeal has provided useful clarification on the extent of litigation privilege.

The scope of litigation privilege

The Disputed Documents comprised six emails passing between Board members of E20 and between Board members and stakeholders.  E20 asserted privilege on the basis that they were composed with the dominant purpose of discussing a commercial proposal for the settlement of the dispute at a time when litigation was in reasonable contemplation.

Lord Carswell's summary of the scope of litigation privilege in Three Rivers (No 6)[2] will be familiar:

"communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:

1. litigation must be in progress or in contemplation;
2. the communications must have been made for the s0le or dominant purpose of conducting that litigation;
3. the litigation must be adversarial, not investigative or inquisitorial."

E20 argued that "conducting litigation" must encompass avoiding or settling litigation and the Court of Appeal agreed. It applied its own decision in the recent appeal of SFO v ENRC[3] that "legal advice given so as to head off, avoid, or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending [proceedings]".  It also cited the 1876 case Anderson v Bank of British Columbia[4], in which it was held that the information attracting privilege may be "simply for the purpose of knowing whether he ought to defend or prosecute the action" (emphasis added).

However, E20 had misapplied the three limbs in Lord Carswell's test. The Court held that they are not an extension to his general proposition covering communications between parties or their solicitors and third parties for the purpose of obtaining information or advice. Rather, Lord Carswell was adding conditions that restricted the general proposition.

The Disputed Documents were created "with the dominant purpose of discussing a commercial settlement of the dispute when litigation with [West Ham] was in contemplation". This did not fall within the scope of litigation privilege as the documents were not created for the purpose of obtaining advice or information in connection with the dispute.

Privilege was separately asserted in other documents, falling outside of the appeal, on the basis that they implicitly reflected legal advice, and the Court of Appeal acknowledged that documents in which information or advice cannot be "disentangled", or which would otherwise reveal the underlying information or advice, are covered by litigation privilege.

E20 also sought to extend litigation privilege to cover all internal communications within a body cooperate, a notion swiftly dismissed by the Court. In particular it objected to the notion that corporations should receive greater protection than partners or trustees who were equally likely to discuss litigation.

The purpose test

Although the Judge had determined that litigation was in reasonable contemplation some five months before the Disputed Documents were produced, the parties had also aired expert determination as a potential means of dispute resolution. West Ham argued that the Judge erred in failing to assess which of these was the dominant purpose for which the documents were produced.

The Court of Appeal rejected this, finding that where there are two or more ways in which a dispute may be resolved by adjudication, provided that one of these is adversarial litigation and is reasonably in contemplation, "the dominant purpose requirement of litigation privilege is met if the information or advice is obtained for the purposes of settling the dispute". It is not necessary for the Court to investigate further.

What does this mean for attempts to settle disputes?

The Court of Appeal's clarification reinforces the importance of taking care when creating new documents once litigation is in prospect.

Settlement is part of "conducting litigation" and documents that are created for the purpose of obtaining information or advice in relation to settlement do attract litigation privilege. However, there is no privilege in documents that make a purely commercial assessment of compromising a claim unless to do so would reveal underlying privileged information or advice. Practically speaking, Board members should be aware that their communications may be disclosable even where they are discussing potential litigation. If possible, purely commercial discussions should be held orally, with documents created only where the purpose is to obtain information or advice.

More helpfully, parties need not be concerned where there are multiple potential means of dispute resolution, whether through contractual provisions or discussion between the parties. Provided that one possible route is adversarial litigation and that litigation is reasonably in contemplation, litigation privilege can be engaged. 

To read more articles related to this topic or to view other know-how material relevant to dispute resolution please visit our dedicated know-how portal Disputes+.