Angela Milner (Senior Associate, Knowledge Development Lawyer) provides a round-up of the key cases on privilege that have emerged from the courts this year.

This year has brought with it many interesting cases on privilege. The courts have shed light on a number of areas including the exceptions to the doctrine of privilege, the circumstances in which it can be waived and the purpose for which parties can use it. We have also seen the introduction of the “dominant purpose” requirement in the context of legal advice privilege, as well as clarification from the courts that companies will not be required to hand over privileged emails to a regulator (in this case the FRC) to assist that regulator with its investigation into an auditor. The courts have also looked at the interesting question of whether communications between foreign, in-house lawyers and their clients can be subject to legal professional privilege under English law (in circumstances where the foreign lawyers are not regulated). An overview of these important cases is set out below.

Privilege and the unambiguous impropriety exception

The court has made it clear that the scope of the “unambiguous impropriety” exception (which allows parties to obtain documents that would otherwise have been subject to without prejudice privilege, or to permit a party to rely upon something said during without prejudice meetings) is very narrow indeed.

The court in Wired Orthodontics Ltd and others v HMRC [2020] UKFIIT 0290 (in which a solicitor acting for HMRC was alleged to have influenced the content of an expert report) made it clear that the unambiguous impropriety exception should only be applied in the “clearest” (para 58) cases of abuse of a privileged occasion. Prima facie evidence of impermissible interference by a solicitor in the finalisation of a joint expert report was not sufficient for this exception to bite. Without prejudice privilege will only be overridden where there is a “conscious” (para 87) use of without prejudice discussions for an “abusive purpose” (para 87). On the facts of this case, although what had taken place was “improper” (para 88), it did not quite reach the threshold of being “abusive” (para 88). As such, the exception did not apply and the communications between the solicitor and the expert were not disclosable.

However, the last few months have provided us with a useful example of when the unambiguous impropriety exception will apply in practice. In the case of Motorola Solutions Inc and Hytera Communications Corporation and others [2020] EWHC (Comm) 238, Motorola persuaded the court to take into account statements (made during without prejudice discussions) by senior management of Hytera to the effect that Hytera intended to move assets out of certain jurisdictions, with a view to preventing Motorola from enforcing a judgment obtained in its favour. The court reiterated that the unambiguous impropriety exception was narrow. However, the behaviour of Hytera’s CEO amounted to clear abuse of privilege in this case and, consequently, the unambiguous impropriety exception applied. The statements were therefore taken into account and ultimately assisted Motorola in obtaining a freezing injunction over the assets.

Privilege and the iniquity exception

Case law from earlier in the year has made a number of important points about the iniquity exception (sometimes called the “crime-fraud” exception). This exception operates to deprive a party of the protection that legal professional privilege would otherwise afford them if the communications between the lawyer and client were conducted with the intention of pursuing a fraudulent purpose (irrespective of whether or not the lawyer knew that was the case).

As to the relevant threshold, the case of Addlesee and others v Dentons Europe [2020] EWHC 238 (Ch) serves as a useful reminder that in order to avail of the iniquity exception (at least in the context of legal advice privilege), a party must show that there was a “strong prima facie” (para 48) case of fraud. Cases where (as in Addlesee itself) there are “classic hallmarks” (para 142) of a fraudulent scheme and a “very strong and compelling case” (para 144) will fall within the scope of this exception.

As to the scope of the exception, the case of Barrowfen Properties v Patel and others [2020] EWHC 2536 (Ch) makes a number of interesting points. Firstly, although the threshold at which the exception will apply is high, the scope of the exception is relatively wide: “the exception is not confined to crime or fraudulent misrepresentation but extends to fraud in a ‘relatively wide sense’” (para 33). It applies where “the wrongdoer has indulged in sharp practice, something of an underhand nature where the circumstances required good faith, something which commercial men would say was a fraud or which the law treats as entirely contrary to public policy” (para 33).

Further, the case of Barrowfen Properties v Patel and others [2020] EWHC 2536 (Ch) puts it beyond doubt that the iniquity exception can be engaged where there are allegations of breaches of the Companies Act by directors where these involve “fraud” (in the wide sense), “dishonesty, bad faith or sharp practice or where the director consciously or deliberately prefers his or her own interests over the interests of the company and does so ‘under a cloak of secrecy’” (para 35).

Perhaps one of the most interesting aspects of this case is that it suggests that the court would need to be satisfied (where the privilege in question is litigation privilege) that there was a “very strong prima facie case” (para 40) of fraud (in the broad sense) or some other iniquity. This appears to be a higher standard of proof than that referred to in Addlesee, which seems to apply in the context of legal advice privilege (where the relevant threshold appears to be lower, i.e. “strong prima facie case” (para 36)). It remains to be seen how this will be approached in future cases.

Privilege and confidentiality

There have been a number of cases regarding the circumstances in which confidentiality (and therefore privilege) can be lost.

1. Referring to a document in open court
   The case of SL Claimants v Tesco PLC [2019] EWHC 3315 (Ch) illustrates that referring to a document in open court does not automatically mean that confidentiality – and therefore privilege – will be lost. In considering whether confidentiality had been lost over the document, the court drew a distinction between (i) information in a document and (ii) a document itself. It made it clear that whether references “are such…to constitute such an exposure of the document to the public that confidentiality in it is lost is a matter of degree” (para 42). On the facts of this case, the references did not (either in terms of their detail or extent) amount to a loss of confidentiality in the document itself. This was so despite the fact that some of the content of the document had been summarised, read out and discussed in legal argument.
2. Underlying instructions given to a solicitor where the solicitor has provided a confirmation
   The case of Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd and another [2020] EWCA Civ 11 demonstrates that where a solicitor confirms that it has received certain instructions, confidentiality over the underlying instructions themselves will not necessarily be lost.
   On the facts of this case, a law firm provided confirmation to a bank that it had “been put in funds” (para 1) and that it had “received irrevocable instructions to transfer those funds to an escrow account (or in the event that the escrow agreement was not signed within 30 days, to continue to hold the funds pending agreement between the parties or an alternative arrangement)” (para 1). The court could see “no reason why [the communications between [the law firm and its client] should cease to be confidential” (para 66), particularly as the client had not authorised the law firm to say any more than what was in the confirmation.
3. Referring to the conclusion of legal advice in witness statements/court documents
   It has long been established that reference to the effect of legal advice will not amount to a waiver of privilege, but that reference to the contents of legal advice will. In the case of PCP Capital Partners (2) PCP International Finance Ltd v Barclays Bank [2012] EWHC 1393 (Comm), the court made it clear that the content/effect distinction “cannot be applied mechanistically” (para 60) and that a waiver can arise even if only the conclusion of the legal advice is referred to (as opposed to detailed contents).

The court set out that:

• a purely narrative reference to the giving of legal advice does not constitute a waiver of privilege;
• nor does a mere reference to the “fact” of legal advice, such as “my solicitor gave me detailed advice. The following day I entered into the contract” (para 49). (However, saying “I entered into the contract as a result of that legal advice” would give rise to waiver (para 49));
• the law has typically proceeded on the basis that referring to the effect of legal advice does not constitute a waiver, but referring to the contents does. However, this contents/effects distinction cannot be applied mechanistically;
• rather, its application has to be viewed and made through “through the prism of whether (a) there is any reliance on the privileged material adverted to (b) what the purpose of that reliance is and (c) the particular content of the case in question. This is an acutely fact sensitive exercise” (para 60). Applying this approach, a waiver can arise even if only the conclusion of the legal advice is referred to, as opposed to the contents.
• On the facts of the case, phrases such as “I took comfort from” (para 88) and “I am certain that if anything has been proposed at the meeting which created a problem from a legal perspective, [the lawyers] would have said so” (para 95), amounted to an assertion that whatever was done was approved as lawful by the lawyers. This amounted to a waiver of privilege not only to the advice mentioned, but to all legal advice in relation to the particular document.

This case underlines the importance of exercising extreme caution when referring to legal advice in witness statements/other documents. Even undetailed references could result in privilege being waived.

Privilege can only be used as a shield, not a sword

The case of HML PM Ltd v Canary Riverside Estate Management Ltd and another [2019] EWHC 3496 (QB) makes it clear that although parties can occasionally use the fact that someone else is entitled to assert privilege over a document as a shield to prevent them from having to disclose the document, they cannot use the fact that someone else has privilege over a document as a sword: i.e. to injunct/restrain another party from using them.

The dominant purpose test applies to legal advice privilege

Perhaps the most significant case involving privilege this year has been that of Civil Aviation Authority v R Jet2.Com Ltd [2020] EWCA Civ 35. This case makes it clear that in order to avail of legal advice privilege, a party must prove that the document was created/sent for the dominant purpose of obtaining legal advice (i.e. the dominant purpose test does not apply only to litigation privilege). If the dominant purpose of the communication is to settle the instructions to the lawyer, then (subject to the narrow interpretation of client set out in previous case law) that communication will be covered by legal advice privilege. However, if the dominant purpose is to obtain the commercial views of non-lawyer recipients, then it will not be privileged, even if a subsidiary purpose is simultaneously to obtain legal advice from a lawyer addressee. The response from the lawyer, if it contains legal advice, will almost certainly be privileged.

To read our more detailed analysis of this case, please click here.

Privileged documents and the regulator

The Court of Appeal has now confirmed (in the case of Sports Direct International plc v Financial Reporting Council [2020] EWCA Civ 177) that companies that find themselves in a situation whereby their auditor/other professional is being investigated for wrongdoing will not be required to hand over privileged emails to the FRC/regulator in order to assist them with their investigation. In delivering its judgment, the Court of Appeal overturned the highly controversial decision of Mr Justice Arnold in what is commonly known as the Sports Direct case. (At first instance, Sports Direct had been ordered to hand over documents between it and its legal advisors to the FRC to assist with the FRC’s investigation into Grant Thornton.)

Although it was then clear that documents that are definitely privileged do not need to be handed to the regulator, some uncertainty remained as to what should happen where there is disagreement over whether or not the documents are, in fact, privileged. The case of A v B and another [2020] EWHC 1491 grapples with this issue. In this case, the auditor was asked by the regulator to hand over documents belonging to a client in circumstances where the client considered that they were privileged, but the auditor disagreed. The question for the court was whether the view of the client or the auditor on the issue of privilege should prevail.

The court made it clear that the auditor must take their own view on whether the documents were privileged. Mere assertion of privilege by the client is “not sufficient… [the auditor] is entitled and obliged to withhold only documents that are [in fact] privileged”(para 39).

Privilege and foreign lawyers

The recent case of PJSC Tatnett v Bogoluboy and others [2020] EWHC 2437 provides some important clarification regarding whether communications between foreign, in-house lawyers and their clients can be subject to legal professional privilege under English law. The court answered this question in the affirmative, notwithstanding the fact that the Russian based in-house lawyers in question were not “advocates” and had not been admitted to the bar (points that the second defendant argued were relevant given that these lawyers cannot benefit from the Russian equivalent of privilege).

The contention by the defendant that the communications between the in-house lawyers in Russia and members of the business could not be subject to privilege under English law because such lawyers were not “registered”, ”regulated” or “appropriately qualified” was rejected. Rather, the court made it clear that “legal advice privilege extends to communications between foreign lawyers whether or not they are ‘in-house’ and the employees of a particular company or organisation… the court will not enquire into how or why the foreign lawyer is regulated or what standards apply to the foreign lawyer under the local law. The requirement for legal advice privilege to attach is that they should be acting in the capacity or function of a lawyer” (para 57). The “status” (para 36), training and experience of the foreign lawyer was not relevant for the purpose of deciding whether their communications could attract the protections associated with legal professional privilege.

You can see a full list of our current securities litigation cases and investigations here.

You can find further information regarding our expertise, experience and team on our Securities Litigation pages.

If you require assistance from our team, please contact us or alternatively request a call back from one of our lawyers by submitting this form.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.