High Court holds deception undermines "dominant purpose" for claim to litigation privilege

In Property Alliance Group Ltd v Royal Bank of Scotland Plc the Court held that where a claimant had met the defendant's former employees to seek evidence for the claim, but had misled them as to the purpose of the meetings, the dominant purpose of those meetings could not be said to be the litigation.

As a result, the claim to litigation privilege in respect of records of the meetings could not be sustained. The decision also provides a case study on the use of privileged material that is inadvertently disclosed in litigation.

A version of this case report first appeared on Practical Law and is reproduced with the permission of the publishers.

Background

 Property Alliance Group Ltd (PAG) alleges that between 2004 and 2008 The Royal Bank of Scotland plc (RBS) mis-sold it four interest rate swaps, referenced to 3 month sterling LIBOR.  While there have been no judgments on its substantive claims, the disclosure process has led to a string of published decisions in 2015, notably on without prejudice privilege in relation to settlement discussions with regulators, as reported here, and legal advice privilege in relation to the documents of an internal RBS management committee, as reported here.

The claim to privilege

 In the months before and after filing its claim form, PAG's managing director, Mr Russell, had arranged separate meetings with Messrs Jones and Goldrick, who had worked for RBS when PAG entered into its swaps but had subsequently left.  Mr Russell set up these meetings on the basis that he was interested in establishing a relationship between PAG and Messrs Jones and Goldrick's new businesses. 

However, Mr Russell's real motive for arranging these meetings was to seek assistance in PAG's claim against RBS and he secretly recorded the meetings in the hope that they would yield evidence to support PAG's claim.  When he later asked Messrs Jones and Goldrick whether they would be willing to assist PAG in its claim, they both refused.

The test for litigation privilege

 The test for litigation privilege is deceptively simple.  It protects communications between clients or their solicitors and third parties that are made for the dominant purpose of actual or potential adversarial legal proceedings.  It is not sufficient that the legal proceedings are one of many purposes of the communications, or even one of two equally important purposes (see Waugh v British Railways Board [1980] AC 521). 

There could be no doubt in this situation that:

• there had been communications (evidenced by the recordings and transcripts) between the claimant, PAG, and third parties; and
• adversarial legal proceedings were either contemplated or in existence at the time of the communications. 

What, however, was the dominant purpose of the communications?

Assessing the dominant purpose 

PAG argued that this was to be decided objectively on the basis of all the evidence, but solely from the perspective of Mr Russell, who had set up the meetings and arranged for the recordings.  RBS argued that the dominant purpose was to be judged objectively from the information available to both parties at the time of the meetings.

The Court agreed with PAG that the dominant purpose of the communications was to be determined objectively on the basis of all the evidence, rather than by reference to the information available to all the parties contemporaneously.  Applying that test, it was clear that Mr Russell arranged the meetings to gather evidence for litigation.  Equally clear, however, was the fact that RBS' former employees attended these meetings with the purpose of discussing future business. From just these facts, the Court did not believe it was possible to distil a dominant purpose as they were "two clear but entirely divergent purposes".

Previous authorities (including in the Court of Appeal) had held that it was the purpose of the person who procured the creation of the communication that was relevant, ie Mr Russell's purpose.  However, the Court here was not prepared to prefer Mr Russell's purpose to that of the former RBS employees.  What tipped the balance for the Court was that Mr Russell had "actively deceived" the former employees.  As a result, the "fair and correct" way of assessing the dominant purpose of the meetings was to look at the former employees' perspective – and their purpose in attending the meetings was future business. 

Using privileged documents disclosed accidentally

 obvious to any reasonable solicitor" that the email was likely to be privileged.  In those circumstances, the Court held that RBS should have written to PAG about the email as soon as it was identified and then applied for permission to use the email as they did.  RBS' failure in this regard merited a costs sanction.     

Comment

 Leaving aside the cautionary tale on what (not) to do when privileged documents are accidentally disclosed, the Court was clearly (and unsurprisingly) influenced by PAG's director's decision to deceive the two potential witnesses, describing it as the "critical point" and hinting that its decision might have been different if there had been no deception.  If this decision is limited to cases of deception in gathering evidence, it may have limited impact. 

However, if it is not so limited, the Court's decision to look at the intentions of both parties, rather than the procurer of the communication, to discern the dominant purpose could have wider implications, as litigants may seek information to assist their case from a range of sources without necessarily actively disclosing (or concealing) the litigation.  In those circumstances, on the Court's analysis here, those communications may not be protected by litigation privilege because each party may have "two clear but entirely divergent purposes".  In this regard, some of the leading textbooks may need to be treated with some caution. 

PAG and RBS also took different views as to whether the meetings had to be confidential to attract litigation privilege.  Confidentiality is an essential element of a claim to legal advice privilege, but its role in litigation privilege is more uncertain.  However, it remains so for the moment, as the Court decided it did not need to make a finding on this point and declined to do so.

Until these points are confirmed, therefore, where possible, the safer course will undoubtedly be for actual or potential litigants to disclose the reason for the inquiry to anyone with whom they communicate for the purposes of the litigation and to hold any discussions on an expressly confidential basis.