Can litigation privilege be claimed for exploratory correspondence with an expert before litigation is in prospect?

In a recent case(1), the Court decided that correspondence with an expert did not attract legal professional privilege.

The expert's work had been intended to provide "ballast" for a claim in suspected mismanagement, but in fact the expert's investigation uncovered a potential alternative claim, which was quite distinct from the claim initially being investigated.

Facts

As is well known, English law divides legal professional privilege into two broad categories: legal advice privilege and litigation privilege.  

The facts in this case are complex and not entirely clear from this interlocutory judgment. For present purposes, it is sufficient to note that there were three claims on the basis of which litigation privilege was potentially in play:

• First, there had been a shareholder dispute which concerned the distribution of insurance proceeds following the total loss of a vessel owned by the first claimant. It was accepted by the defendants that by October 2018 litigation was in reasonable contemplation in relation to the shareholder dispute and that litigation privilege could be claimed by the claimants for documents created for the dominant purpose of that dispute.
• Secondly, at the same time, there was a dispute regarding the settlement of the first claimant's exposure under certain freight forwarding agreements (the FFAs) (the so-called “mismanagement claim”).  This claim does not (yet) appear to have been pursued in litigation.
• Thirdly, in the context of correspondence about the mismanagement claim, the claimants (via their solicitors) instructed an expert to audit the freight forwarding agreements "to make good any legitimate grievance that might exist" and to provide "ballast in the correspondence".  The claimants say that as a result of that instruction and further enquiries, a new claim emerged regarding the basis on which the FFAs were entered into (the so-called “mispricing claim”). The claimants asserted that the instruction of the expert and the further enquiries arising from it were protected by litigation privilege as litigation regarding the FFAs was reasonably in contemplation by late 2018.

The initial question was thus whether litigation privilege could be claimed for the ballast exercise prior to the crystallisation and discovery of the mispricing claim.

Test for litigation privilege

A document may be protected by litigation privilege if it was created for the dominant purpose of conducting litigation in reasonable prospect. The following refinements can be derived from Starbev GP Ltd v Central European Holding BV [2013] EWHC 4038 (Comm):

• The burden is on the party claiming privilege. The assertion of privilege and a statement of the purpose of the communication on the face of the document are not determinative and are evidence of a fact that may require to be independently proved. 

The party claiming privilege must establish that litigation was reasonably contemplated or anticipated. It is not sufficient to show that there is a mere possibility of litigation or that there was a distinct possibility that someone might at some stage bring proceedings or a general apprehension of future litigation.

• It is not enough to show that proceedings were reasonably anticipated or in contemplation. The party must also show that the relevant communications were for the dominant purpose of either:

• enabling legal advice to be sought or given; and/or
• seeking or obtaining evidence or information to be used in or in connection with such anticipated or contemplated litigation. 

• Where communications may have taken place for a number of purposes, it is incumbent on the party claiming privilege to establish that the dominant purpose was litigation. 
 

Decision

No litigation privilege

The Court concluded that the expert was instructed in order to support the claimants' mismanagement allegation in correspondence. That correspondence uncovered the mispricing claim, which was stated to have come as a surprise to the claimants and by extension could not have been the dominant purpose of the correspondence, nor could any litigation have reasonably been in prospect in relation to it. 

The dominant purpose of the correspondence was, as the claimants had stated, to obtain evidence in support of the "mismanagement claim".  However, that claim has not reached a stage where it was possible to say that litigation in relation to the mismanagement claim was in reasonable prospect. Indeed, the judge noted that there was no suggestion that the mismanagement claim was to be added to the current proceedings or pursued in separate proceedings. Accordingly, the exchanges with the expert were not prepared for the dominant purpose of litigation that was reasonably in prospect.

The Court therefore concluded that no litigation privilege could attach to the correspondence with the expert as there was no litigation reasonably in contemplation in relation to the mismanagement claim, and the mispricing claim had yet to be identified let alone crystallised at the time of that correspondence. 

No waiver

The second issue considered by the Court was whether references in a witness statement to the steps taken by the claimants to identify the mispricing claim (and the documents generated in that process), in circumstances where the mispricing claim was otherwise time-barred, amounted to a waiver of privilege in those documents. 

Generally, the relevant test is whether there is reliance on the contents or effect of the privileged documents, with only the former giving rise to a waiver.

The defendants argued that the references in the witness statement to the various stages of the process leading to the discovery of the mispricing claim involved a waiver of privilege by relying on the expert report and underlying documents there referred to. The claimants pointed out that it was incumbent upon them to explain the circumstances in which the mispricing claim had been discovered and the steps which had to be gone through in order to discover it. The claimants did not, however, rely on or identify any documents as part of that explanation. 

The Court dismissed the waiver application stating that there was not, in any sense, a reliance in the witness statement on any particular document. Indeed, there was no express reference to documents, merely a reference in general terms. The witness statement merely went through the various steps that were taken by the claimants from November 2018, which led to the discovery of the mispricing fraud. That was insufficient to give rise to any waiver. 

Comment

There are two main points to note from this decision. 

The first is that investigations to ascertain whether a suspected claim might exist are not normally protected by litigation privilege as, by definition, there is no litigation reasonably in prospect in respect of the suspected claim at that stage. The fact that the investigations brought to light a completely different claim to the potential claim being investigated does not operate to cloak those investigations retrospectively with litigation privilege. This illustrates the strictness of the test to be satisfied for litigation privilege to apply. 

The second is that great care must be taken in narrating steps taken in investigating a potential claim. In order to ensure that there is no waiver of privilege in the documents generated by that investigation, it is important to ensure that no reliance is placed on the privileged documents, and it would be advisable to limit or entirely remove any express reference to privileged documents from the narrative. 

(1) Kyla Shipping Co Ltd and others v Freight Trading Limited and others [2022] EWHC 376 (Comm)