Settlement deliberations are not privileged

A judge talking to two lawyers in the hall of a marble building

You sit on the board of a company which is sued for £100 million. The company’s lawyers advise that the claim is a try-on and should be resisted. Three years later, after £2 million has been spent on defense costs and with a trial date looming, a settlement opportunity arises. The company’s lawyers advise that the offer be rejected, but you’re worried about the reputational impact on the company if the trial goes ahead. You exchange emails with a number of your fellow directors on this subject. The claimants apply to court for a disclosure order in respect of this email exchange.

Most directors would assume that emails of this kind were confidential and/or privileged and therefore not susceptible to disclosure. Yet that may not be so as a result of a recent Court of Appeal ruling in WH Holding Ltd v E20 Stadium LLP [2018] EWCA Civ 2652.

The facts

The underlying dispute in this case was between a premier league football club and its landlord, and related to the number of seats in the football stadium that the club was entitled to use.This appeal related to the club’s challenge to the landlord’s claim to privilege over six emails passing between its board members, the club and the company’s stakeholders.

The company asserted privilege on the basis that the emails were composed with the dominant purpose of discussing a commercial proposition for the settlement of the dispute at a time when litigation was in reasonable contemplation. The Court of Appeal disagreed.

The scope of litigation privilege

The law of privilege in the U.K. has undergone an intense period of uncertainty and development over recent years culminating in the decision of the Court of Appeal in SFO v ENRC [2018] EWCA Civ 2006. What this line of cases addressed was how and when existing forms of privilege arise. What they didn’t concern was whether its existing scope should be extended beyond recognized categories of advice or evidence.

The relevant category of privilege here is litigation privilege. This attaches to:

“… 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: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.” Three Rivers No 6 [2004] U.K.HL 48.

The appellants in this case argued that the emails were privileged because they were created:
“… with the dominant purpose of discussing a commercial settlement of the dispute when litigation with [the tenant] was in contemplation.”

The Court of Appeal rejected this argument and the more general proposition that litigation privilege be extended at all. It said: “We do not consider that there is any justification for extending the scope of litigation privilege….. It has always been recognised that privilege is an inroad into the principle that a court should be able to decide disputes with the aid of all relevant material.”

Here of course the actual emails did not fit into the category of documents created “…between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation.” That’s because they neither involved the company’s lawyers nor was their content such that the privileged information or advice “could not be disentangled or which would otherwise reveal such information or advice.” As such they were disclosable.

Conclusion

This is only the latest case in what is likely to continue to be a vexing and sensitive subject for senior managers and board members with many traps for the unwary (See, for example, my earlier blog on the difficulties surrounding internal reviews prepared in contemplation of litigation). There is perhaps an important practical lesson to be learned. The fact the original communication from the company’s lawyers may indeed be subject to privilege doesn’t mean that other documents created in reference to it — including those in which the proposed settlement or other legal advice is contained — will similarly be privileged.

In cases like these, there is considerable risk that emails and other communications containing sensitive commercial considerations may fall into the hands of an opposing party in litigation. The consequences will depend on the context and content, but the damage to the company’s interests may be real. Therefore, it’s much safer to either avoid creating these documents altogether and limit deliberations to oral discussions, or to do so only after seeking legal advice.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Claim & Risk Control, Directors & Officers, Insurance and Risk Management, Risk Culture | Tags: , , , ,

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