Privilege: the key developments in 2023

Legal Professional Privilege is a fundamental right which allows parties to seek legal advice and to communicate confidentially in the context of litigation without having to disclose those communications to the court or to a third party.

This is a fast-moving area of law. The scope of the protection provided by privilege and the steps parties should take to preserve it are frequently the subject of litigation. Given the importance of privilege, and the serious consequences if it is lost, it is vital that both lawyers and clients keep up to date with developments in the law.

In this briefing we look at the key judgments from 2023 and a subsequent appeal decision which was handed down in 2024. We also highlight the practical lessons arising from them.

Does litigation privilege apply to third parties?

In Al Sadeq v Dechert LLP [2024] EWCA Civ 28, the Court of Appeal held that the scope of litigation privilege is not limited to the communications of the immediate parties to proceedings. In some circumstances, it can also protect the communications of third parties, provided that the usual test for litigation privilege is met (communications prepared for the dominant purpose of seeking or obtaining legal advice, or information or evidence, in connection with litigation that is in reasonable contemplation).

Setting out specific examples, the Court of Appeal confirmed that litigation privilege could apply:

• To the communications of liability insurers and litigation funders who have conduct of proceedings,
• To non-parties involved in evidence gathering in group litigation, for example the insured entities that contributed to the recent test case that was brought by the Financial Conduct Authority in relation to business interruption insurance issues arising out of the Covid-19 pandemic,
• To the participants in a joint venture, where the joint venture is a party to litigation, and
• To witnesses or potential witnesses who seek advice as to the assistance they can and should give to a party.
  
  

Does legal advice privilege protect the work of lawyers who carry out an investigation?

In Al Sadeq the Court of Appeal also confirmed that legal advice privilege can apply where lawyers are engaged to conduct an investigation, provided that they are instructed for their legal expertise and the investigation is conducted in a legal context. Documents created as part of a purely investigative role, without any legal purpose, will not be privileged.

The Court of Appeal acknowledged that parties should not take a blanket approach to claiming privilege across documents created as part of investigation. Instead, parties should apply the test for legal advice privilege to each document individually. In this case, the Court of Appeal found that the lawyers for Dechert had applied the test correctly. While they had taken the approach that the investigatory work carried out by Dechert was generally carried out in their capacity as lawyers and using their professional legal skills, they did disclose certain documents relating to the investigation, such as documents created for the purposes of public relations, which clearly did not attract legal advice privilege. 

A cautious approach to challenging redactions

In ENRC v the Director of the Serious Fraud Office [2023] EWHC 2488, the High Court contemplated challenges to redactions that had been made on grounds of privilege and the question of the extent to which privilege is waived when a document is referred to in court or in a party’s statement of case.

The claimant challenged certain redactions under paragraph 14 of Practice Direction 57AD of the CPR which would enable the court to inspect the document to determine whether there was a proper claim to litigation privilege. In the alternative, the claimant sought an order requiring the SFO to provide “a description of the general nature or purpose of the information (and its corresponding relevance to the reasoning of the [document])” so as to further explain the basis on which it asserted privilege over the redacted paragraphs.

In refusing both applications, the High Court made the following points:

• Inspection by the court is not limited to cases where the court is “reasonably certain” that a claim of privilege has been misapplied, but the court must be mindful of the danger of looking at documents out of context at the interim stage. The challenges raised by the claimant in this case would, in the court’s view, require the court to have knowledge of context which would probably not be apparent merely by reading the relevant sections in the report, and
• Any explanation of the basis for the claim of privilege would require the SFO to provide details that would, in all likelihood, destroy the privilege that was being claimed.
  
  

ENRC serves as a useful reminder that redactions on the basis of privilege are not immune from challenge and that careful thought should be given as to the basis for each and every redaction. However, practitioners may be reassured that the court will take a reasonably cautious approach to allowing inspection.

Waiver (1): Possible grace period to fix inadvertent waiver of privilege

ENRC also serves as a warning of the perils of waiver by inadvertent reference to documents in a party’s statement of case. The claimant also applied for a declaration that privilege over another document had been waived because the SFO had "deployed" it in its pleadings (as part of an annex to its Defence). The court confirmed that mere reference to a document is not sufficient to constitute deployment, there must be reliance on the contents of the document. In this case, the court found that there had been reliance on the contents of the document. However, it granted the SFO a "grace period" in which it could elect to amend its pleadings to avoid waiver of privilege.

Waiver (2): No loss of privilege over an employee’s personal email found on a work laptop

The decision in Taylor v Evans [2023] EWHC 935 (KB) considered when privilege may be lost where material has come into the hands of an opponent to litigation in circumstances other than through accidental disclosure during the litigation process itself.

In litigation between an employer and an employee, the employer sought to rely on a personal email between the employee and her lawyer. The employer had seen the email in the course of an investigation when it had asked various members of staff to provide their work laptops for forensic analysis. The employee claimed that she was entitled to assert privilege over that document.

The court applied the test set out in previous authorities: the question of whether confidentiality (and therefore privilege) is lost depends on whether a reasonable person standing in the shoes of the recipient of the material would have realised that such material was being provided in confidence. The court agreed with the employee: privilege had not been lost over the email because it was clear, or should have been clear to the employer, that the information had been communicated in confidence. Of significance in this case were the facts that the employee had told the defendant’s IT team that she believed that she had deleted all personal information before she handed the laptop over, that it was clear that the email was a request for legal advice (the reply was also headed “Legally privileged”) and that staff had been assured by the defendant that steps would be taken to safeguard their personal information.

The decision in Taylor contrasts with that in Simpkin v The Berkeley Group Holdings plc [2017] EWHC 1472 (QB) where it was held that an employee’s documents were not privileged as against his former employer because the employee had no reasonable expectation of privacy in relation to material created and stored on the employer’s IT system. Therefore, though this case serves as a useful example of the factors a court may take into account, it is clear that the court will continue to adopt a case-by-case approach.   

Joint interest privilege (1): a challenge to the shareholder principle?

Joint interest privilege, also known as the shareholder principle, means that legal advice taken by and paid for by a company is understood to be for the benefit of the shareholders as a whole. As such, shareholders are entitled to know what that advice says and, as a general rule, a company cannot refuse to share documents with its shareholders on the basis of privilege (Sharp v Blank [2015] EWHC 2681 (Ch)).

In 2023, this principle was followed by the court in Saxon Woods Investments Ltd v Costa [2023] EWHC 2154 (Ch) (also referred to as Re Spring Media Investments Ltd [2023] 4WLUK 202). The underlying litigation related to a claim by a shareholder in Spring Media that the CEO of the company had acted in breach of a Shareholders’ Agreement and his duties by trying to thwart a sale of the company. The court ordered the company to disclose to the shareholder the underlying legal advice paid for by the company. The court reiterated that companies should exercise caution when seeking to assert an exception to the rule that privilege cannot be asserted against its shareholders. Such exceptions may arise where documents come into existence in contemplation of, or for the dominant purpose of hostile proceedings between the company and its shareholders. 

However, in a potentially controversial decision, the High Court in Various Claimants v G4S PLC [2023] EWHC 2863 (Ch), questioned the basis of the shareholder principle. The judge accepted that it was beyond the court’s jurisdiction to overturn the principle but questioned the validity of the principle generally and refused to apply the principle to non-registered shareholders.

The implications of any substantive change to this widely held understanding would be significant and far-reaching. Given the court’s concerns regarding the validity of the shareholder Principle in G4S, this will be an area to watch. Pending any such developments, the prudent position is to assume that legal advice obtained by the company may be susceptible to disclosure to both current and former shareholders unless there is a clear case that that advice concerns hostile litigation against the company in its own right (as opposed to other shareholders and directors).

For a more detailed discussion of these cases, please see Kate Allass, Hoi-Yee Roper and Georgia Tetlow’s article entitled “Shareholder disputes: a challenge to the established position on privilege.

Joint interest privilege (2): no protection against a trustee in bankruptcy

Another issue on joint interest privilege arose in Re Ho Wan Kwok [2023] EWHC 74, this time in the context of a bankrupt and a foreign trustee in bankruptcy. Significantly, the court allowed the trustee in bankruptcy to access the bankrupt’s privileged material, even though the bankrupt held that privilege jointly with several other third parties.

The trustee applied under the Cross Border Insolvency Regulations 2006, and various provisions of the Insolvency Act 1986, seeking access to documents held by a law firm jointly instructed by Kwok (the bankrupt), and two other parties (ADHL and DSL). The documents related to proceedings Kwok had brought jointly with DSL and ADHL against UBS. ADHL and DSL claimed that they should be able to assert privilege against the trustee in bankruptcy. The court rejected this view, ruling that insofar as Kwok had control or possession of the privileged material and the trustee in bankruptcy had a joint interest in the bankrupt’s privilege, the application for access must succeed.

The case is particularly relevant to clients that may instruct law firms on a joint retainer. It highlights the risk that privilege may not prevent third parties from accessing sensitive documents if one of the joint instructing parties becomes bankrupt and the trustee seeks access.

Do not deploy "without prejudice" material in adjudication

In the case of AZ v BY [2023] EWHC 2388 (TCC), the disclosure of "without prejudice" communications to an adjudicator ultimately rendered the adjudicator’s decision unenforceable.

The court acknowledged that this was a rare example of a court refusing to enforce an adjudicator’s decision. It noted that the "without prejudice" rule was founded partly in public policy and partly in the agreement of the parties. Where parties are communicating on both an open and a "without prejudice" basis at the same time, the court must exercise extreme caution in embarking upon a dissection of the communications, or discussions in meetings, so as not to undermine the public policy objective.

In this case, the court concluded that the disclosure of without prejudice communications to the adjudicator led to an objective perception of apparent bias of the adjudicator. The judge found that the without prejudice communications (which were erroneously disclosed) played a significant role in the claimant’s case and were placed “front and centre within the adjudication”. They contained implicit admissions that were inconsistent with the defendant’s open position and were prejudicial and adverse to its interests. There was a real possibility that, having seen the "without prejudice" material, the adjudicator was unconsciously biased in his decision.

When will iniquity bar privilege?

The “iniquity exception” provides that the right to assert privilege may be lost where documents were created for the purpose of furthering a criminal or fraudulent purpose. Two recent judgments provide further clarity on the circumstances in which privilege can be lost.

In Enigma Diagnostics Limited (in liquidation) v Boulter [2023] EWHC 1999, the High Court ordered the disclosure and inspection of correspondence between the law firm DLA Piper and its former client. The claimants alleged that Mr Boulter, DLA Piper’s former client, had fraudulently misappropriated investors’ funds. As DLA Piper had allegedly facilitated the transactions by which the fraud occurred, the claimants sought an order that correspondence between Boulter and the firm was not privileged and that it should be disclosed to them. The High Court agreed and its judgment confirmed that:

• While legal privilege is a fundamental human right, there is no privilege in documents or communications which are themselves part of a fraud, and
• The iniquity exception extends to crime and fraud, and any other equivalent conduct in breach of good faith, contrary to public policy or contrary to the interests of justice.
  
  

The proceedings leading to the Court of Appeal’s recent decision in Al Sadeq also demonstrated that there is much room for debate on this point. In that case, the investment authority of the Emirate of Ras Al Khaimah ("RAKIA") had uncovered a massive fraud in which it alleged that the claimant, one of its employees, had been involved. RAKIA engaged the law firm Dechert to investigate the fraud. In these proceedings, Mr Al Sadeq contended that Dechert committed serious wrongs against him in its investigation, including Dechert being responsible for Mr Al Sadeq’s unlawful arrest, extended detention and torture. When Dechert asserted privilege over documents forming part of its disclosure, Mr Al Sadeq challenged that privilege on the basis of iniquity.

At first instance, the High Court found in favour of Dechert. However, on appeal, the Court of Appeal determined that Dechert had applied the wrong test in relation to the iniquity exception and the disclosure exercise would have to be repeated. The judges set out detailed reasoning for this decision. One of their key conclusions was that the correct merit threshold for iniquity was to show a "prima facie" case: in order for privilege not to apply, it must be shown that on assessment of the material, it appears more likely than not on a balance of probabilities that such iniquity exists.

With many thanks to trainee Leo Salem for his help in writing this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2024