The High Court has rejected a claimant's claim to litigation privilege over preliminary investigations conducted by a third party expert on the basis that litigation in respect of the matter being investigated was not in reasonable prospect at the relevant time: Kyla Shipping Co Ltd v Freight Trading Ltd [2022] EWHC 376 (Comm). The decision is particularly noteworthy as the deputy judge, Charles Hollander QC, is the author of one of the leading textbooks on privilege, Documentary Evidence (14th ed, Sweet & Maxwell).
As is well-established, litigation privilege applies only to documents prepared for the dominant purpose of litigation that is reasonably in prospect. The present decision shows that where a party anticipates a claim in relation to one matter, it should not assume that litigation privilege will necessarily be available for an exercise to investigate other potential claims or counterclaims. This case suggests that the court will look carefully at whether litigation was in reasonable prospect in respect of those matters at the relevant time: if it finds that the party had mere suspicions, a claim for litigation privilege is unlikely to succeed.
The decision is also of interest for the court's consideration of whether privilege in later expert investigations (which were accepted as privileged) had been waived by the party's solicitor referring to them in a witness statement made in support of an application for service out of the jurisdiction. The deputy judge held that there was no waiver, as the circumstances surrounding the investigations had been described only in general terms and there was no reliance on any particular document. However, the decision emphasises the fact-specific nature of the court's assessment, which underlines that a decision to refer to privileged material in documents such as a witness statement or statement of case should never be taken lightly.
It is also worth noting the deputy judge's comments on dominant purpose, although he didn't need to reach a decision on that aspect. The deputy judge referred to Sothebys v Mark Weiss [2018] EWHC 3179 (Comm) (considered here), in which the court found that correspondence with an art expert was not subject to litigation privilege as it was prepared for two purposes: to determine whether a painting was a fake and decide whether to rescind its sale; and for potential litigation if the sale was rescinded. Drawing a parallel with the Court of Appeal's decision in Highgrade Traders [1984] BCLC 151, which the court in Sothebys had declined to do, the deputy judge in the present case said it was "not obvious" that these were other than two aspects of the same purpose – which would mean litigation privilege would be available.
Background
The underlying claim (referred to as the "mispricing fraud" claim) relates to certain forward freight agreements (FFAs) entered into between the first claimant (Kyla) and the first and second defendants in 2007 and 2008. The claimants allege that the FFAs are void, having been concluded on their behalf by the third defendants (CTM) at off market rates in order to enrich the first and second defendants which were in CTM's corporate group. Also in the same corporate group is Kyla's 30% shareholder, YPA.
The defendants deny that CTM ever acted as Kyla's agent and say the claims are time barred. The claimants rely on s.32 of the Limitation Act 1980 to postpone the start of the limitation period (i.e. until they discovered the fraud or could with reasonable diligence have discovered it).
In 2018 there was a dispute between Kyla and YPA as to whether a dividend should be declared in relation to certain insurance proceeds received by the company. In the course of correspondence relating to that dispute, Kyla wrote to YPA on 15 November 2018 saying there had been "a great level of mismanagement" and abuse of the powers granted to YPA's affiliated company to act on Kyla's behalf in entering into the FFAs.
The claimants claimed litigation privilege in respect of documents relating to investigations into the FFAs, which were carried out by a third party expert instructed to audit the FFAs in light of the exchange of correspondence. A witness statement from Kyla's solicitor, Mr Buss, in support of its application for service of the present proceedings on the defendants out of the jurisdiction explained the purpose of instructing the expert as allowing Kyla "to make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence" with YPA and its principal. The claimants say that the result of the expert's instruction, and further consequential enquiries, was that the mispricing fraud emerged.
It was accepted that by the end of October 2018 litigation was in reasonable contemplation in relation to the YPA dispute, and documents created for the dominant purpose of that dispute were covered by litigation privilege. It was also accepted that litigation privilege applied once the mispricing claim "had been identified and crystallised". However, the defendants challenged the claim to litigation privilege for the "ballast exercise", prior to the crystallisation and discovery of the mispricing claim. They also argued that any privilege relating to the FFA investigations had been waived as a result of statements in Mr Buss's witness statement in support of the service out application.
Decision
The High Court rejected the claim for litigation privilege in relation to the "ballast exercise", but found that there was no waiver of the privilege that existed in relation to other documents.
Litigation privilege
The deputy judge referred to Starbev v Interbrew (considered here) in which Hamblen J rejected a claim to litigation privilege where a party had instructed an expert to investigate a suspicion concerning the sale of its business. Hamblen J concluded that unless and until the expert had confirmed there was substance to that suspicion, there was no real reason to anticipate litigation.
The defendants in the present case drew parallels with Starbev, arguing that the claimants' instruction of an expert in November 2018 was a fishing expedition. They submitted that litigation in relation to the FFAs was not in reasonable prospect at that time, or alternatively the dominant purpose test was not satisfied as the purpose of instructing the expert was to see whether there was any legitimate grievance in respect of the FFAs, rather than for the purpose of litigation.
The claimants, in contrast, argued that litigation was in reasonable prospect in relation to the YPA claim and the dominant purpose of instructing an expert was to provide evidence in support of a potential counterclaim in those proceedings.
The deputy judge found that the dominant purpose of instructing the expert was not for litigation in reasonable prospect. The references in Mr Buss's witness statement to the purpose of the instruction being for "ballast in the correspondence" were difficult to square with a claim for litigation privilege. The expert appeared to have been instructed for the purpose of trying to provide backing for the mismanagement claim, albeit that the parties to such a claim would have been different, but it did not seem to have reached a stage where it was possible to say that litigation in relation to the mismanagement claim was in reasonable prospect.
The deputy judge ordered that the claimants reconsider the claim for litigation privilege on the basis that litigation privilege could not be claimed for the mismanagement dispute but could be claimed when litigation was in reasonable contemplation in respect of the mispricing claim. Having done that, they were to serve a further list supported by a confirmatory witness statement.
Waiver
The deputy judge noted that the test for whether a reference to privileged materials in a document such as a witness statement constitutes a waiver of privilege is easier to state than apply, as the case law is inconsistent. The test is said to be whether there is reliance on the contents or effect of the privileged material (only the former giving rise to a waiver) but that is not an easy test to apply.
The deputy judge referred to a number of cases including PCP v Barclays (considered here) in which Waksman J held that the content/effect distinction cannot be applied mechanistically, but has to be viewed through the prism of: "(a) whether there is any reliance on the privileged material adverted to; (b) what the purpose of that reliance is; and (c) the particular context of the case in question". This, he said, was an acutely fact-sensitive exercise, which meant that there could be a waiver even though only the conclusion of the legal advice (which he equated to its "effect") is stated rather than its detailed content.
Here the deputy judge noted that there are in fact two connected questions: first, whether privilege has been waived in the particular document referred to; and second, and if so, whether there is a collateral waiver in other documents relating to the same issue or "transaction". Whether or not a collateral waiver arises is a matter of fairness, though this is not a discretion but rather a fact-specific judgment for the court. As the deputy judge put it:
"On the one hand where one party relies on privileged material, it is only fair to the other party that the latter has an opportunity to satisfy itself that what has been disclosed is not a partial account. On the other hand, privilege is a fundamental right and it is only fair to the disclosing party that what must be disclosed is the minimum consistent with fairness to the other."
In the present case the defendants argued that a waiver had arisen from references in Mr Buss's witness statement in support of the application for service out, as it relied on the expert report and underlying documents referred to in describing the various stages leading to discovery of the alleged mispricing fraud.
The claimants said that Mr Buss was required to explain the circumstances in which the mispricing fraud was discovered, pursuant to the duty of full and frank disclosure on the application, and he did so in general terms and without relying on – or even identifying – any documents.
Saying he regarded this issue as clear cut, the deputy judge rejected the allegation of waiver. The purpose of including the information in the statement was to explain the circumstances surrounding the instruction of the expert and the steps leading up to the discovery in general terms, and there was no reliance on any particular document. The deputy judge held that the information given in the statement was "some way away from reliance on the documents which he may be said to refer to implicitly".
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