Litigation Privilege and Settlement Discussions - Are they protected from disclosure?

2018 saw a number of significant cases challenging the scope of litigation privilege (click hereto see our article on these developments). The most recent was decided late last year - WH Holding Limited and West Ham United Football Club Limited v E20 Stadium LLP [2018] EWHC 2784 (Ch) - resulting in a judgment with potentially significant ramifications for the ability of businesses to protect discussions about settling litigation.

One of the key criteria of litigation privilege, which is available in both criminal and civil proceedings, is that communications must have been made or documents produced for the sole or dominant purpose of conducting contemplated litigation. West Ham's case tackled the question of which activities are covered by the concept of "conducting litigation", and specifically whether internal corporate discussions on a commercial settlement proposal should be included.

West Ham and E20 (landlords of the London Stadium, the former Olympic Stadium where West Ham now play) were engaged in a commercial dispute relating to the number of seats that West Ham is entitled to use in the stadium. West Ham argued that the contract permitted them to use more of the stadium's capacity, subject to the necessary permissions being granted by the appropriate authorities. They also argued that E20 was obliged to do its best to obtain the necessary conditions and consents but refused to do so. West Ham disputed E20's claims that its refusal was due to legitimate safety concerns, arguing instead that E20 was using this refusal as a negotiation tool to seek to leverage more remuneration from West Ham. West Ham accused E20 of being deceitful in explaining why it had not applied for the necessary permissions. The root of the dispute was E20's assertion that West Ham was expecting increased capacity to be provided at no extra cost, while insisting that E20 facilitate it.

This context, in which West Ham was suspicious of E20's motives for refusing to apply for the necessary permissions, is important for understanding why the court decided as it did.

In order to establish E20's reasons for its refusal to apply for the necessary conditions, in the lead up to the trial West Ham asked the court to inspect six emails between: (i) E20's board members; and (ii) E20's board members and stakeholders. It appears that these emails would have explained the reasons for E20's refusal to apply for the necessary permissions and as such it was accepted that they were relevant to the dispute between the parties. Indeed, it seems it would have been difficult to challenge the proposition that E20 had acted in good faith without access to these internal discussions. However, E20 asserted litigation privilege over the emails on the basis that they had been created with the dominant purpose of discussing a commercial proposal to settle the litigation. West Ham challenged this on the grounds that the internal emails, while they may have discussed the conduct of the litigation, could not have been concerned with obtaining information or advice for use in the litigation and were therefore not privileged.

The first instance judge upheld the claim to privilege and the documents were protected from disclosure. West Ham appealed, and the appeal decision was expedited due to the proximity of the trial in the underlying proceedings between the parties.

No blanket protection for all documentation connected to litigation

West Ham's appeal was successful. In broad terms, the lesson to be taken from the Court's decision is that litigation privilege will apply only where the following conditions are met:

1. Litigation privilege is engaged once litigation is in progress or reasonably contemplated (i.e. there must be a real likelihood of litigation, not a mere possibility);
2. The litigation must be adversarial in nature, so the privilege will not apply in respect of (for example) investigative or inquisitorial proceedings;
3. Once engaged, litigation privilege covers communications between parties (or their solicitors) and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation, provided the communication is made for the sole or dominant purpose of conducting the litigation (which includes deciding whether to litigate, settle or avoid the litigation);
4. However, not every communication relating to the conduct of litigation will be covered - the Court stressed that communications will be privileged only if they are for the purpose of:
   1. Obtaining advice on the litigation;
   2. Obtaining evidence to be used in the litigation; or
   3. Obtaining information which might lead to the obtaining of such evidence;
5. Documents which contain such information or advice where that cannot be disentangled from non-privileged content, or which would otherwise reveal such information or advice, are themselves covered by privilege.

This means that not all communications made or documents produced in connection with litigation will benefit from litigation privilege. In West Ham's case the Court held that the relevant emails discussed a commercial settlement proposal but did not have the purpose of obtaining, nor did they contain or reveal, advice or information as per the fourth point above. It seems they might have simply discussed the commercial pros and cons of settling, without discussing (for example) the advice they had been given on the prospects of success. They were therefore not privileged.

The Court also rejected an argument, based on a 19^th century case, that there is a free-standing privilege for internal communications within a corporate body. Unsurprisingly, the Court rejected that argument and overturned the older judgment.

This judgment reminds businesses and other organisations to exercise care in producing internal communications, minutes or reports. It is not safe to assume that a document's connection to litigation is sufficient by itself to attract the protection of privilege. If sensitive issues are being discussed, those communications and the documents in which they are contained will only be privileged if they contain or reveal advice or information as per the fourth point above.

Interestingly, after this appeal was decided the parties reached an out-of-court settlement.

The decision does not necessarily mean that settlement discussions will always be recoverable by other parties as privilege is not the only basis for resisting disclosure of documents. In West Ham's case, it was not in dispute that the emails were relevant to the proceedings between the parties, presumably because the question of whether E20 was acting in good faith was a key part of the case. In most cases however it would be difficult to envisage a situation in which one party's internal settlement discussions would be relevant to the merits of a dispute. Discussions about whether and on what basis to offer a settlement may also be protected by the rules on "without prejudice" settlement discussions. The first line of defence for resisting disclosure of such discussions is therefore likely to be on grounds of relevancy, with privilege and "without prejudice" potentially available as fall-back options.

The position in Scotland

As privilege is a common law creation, the rules in Scotland are essentially the same as those that apply in England. While there are fewer cases on privilege in the Scottish courts, the caselaw does indicate a willingness to take the same approach as the English courts. While there would always be scope for the Scottish courts to take a different approach, particularly on questions at the margins of privilege such as the West Ham case, it is usually prudent to plan on the basis that English caselaw (and particularly Court of Appeal decisions) will be followed in Scotland.

Where there are significant differences is in the rules governing disclosure of documentation and the English court's inspection of the disputed emails, which the West Ham appeal also considered. In England, all parties to a civil proceeding are obliged to disclose all relevant material to the other side, even that which is adverse to their case. These rules do not apply in Scotland, however, where there is no equivalent obligation to disclose evidence proactively. The onus is therefore on each party to request what they want from the other side, and seek a court order if it is not provided voluntarily. Such an order can also require a third party to hand over documents in their possession. However, requested documents must be relevant to the issues to be determined by the court; "fishing" exercises are not permitted.

Even if the court orders recovery, the party that holds the documentation may still refuse to disclose it if it is privileged. Unlike in England, however, the "privileged" documentation must be lodged with the court clerk in a sealed packet. The other side must then lodge a motion for the packet to be opened, which the party asserting privilege may oppose.

The question of whether the documents attract privilege will then be argued before the judge based on a written description of the document. If it is not possible to decide the point without reviewing the documents themselves, the judge may examine the documents to determine whether privilege applies.

Accordingly, while it is likely that the merits of the West Ham case would have been decided the same way in Scotland, the question of whether the judge could examine the privileged documents would not have arisen.

If you would like to discuss any issues raised in this legal update, or would like any advice on legal professional privilege, please contact Charles Livingstone, Paul Marshall or your usual Brodies contact.