UK: Proving Privilege: Forewarned Is Forearmed

Last Updated: 18 March 2014
Article by Thomas Leyland and James Eggleton

The Commercial Court has issued a timely reminder of the high hurdle that must be cleared to claim litigation privilege, making it clear that witness evidence as to the purpose of a document will be subject to careful scrutiny. In Starbev GP Ltd v. Interbrew Central European Holding BV 1 the Court considered the correct treatment of investigatory work undertaken before litigation was clearly contemplated and made it clear that any claim for litigation privilege relating to such documents will be closely scrutinised if the claim is challenged. There are however a number of precautionary steps that may increase the chances of claiming litigation privilege successfully.

Background

Starbev GP Ltd (Starbev) purchased a brewing business from the defendant (Interbrew). One of the documents the parties entered into was a contingent value right agreement (the CVR). Under the CVR, Interbrew was entitled to receive deferred consideration if Starbev later sold the business. The deferred consideration was to be calculated by reference to an "Investment Amount", as defined.

Starbev later sold the business (the On-Sale). A dispute arose about the structuring of that sale and the extent to which Interbrew was entitled to receive deferred consideration under the CVR.

Documents subject to claim of privilege

Interbrew asserted litigation privilege over two separate categories of documents:

  • advice received from Barclays, at the time of the On-Sale, concerning the structuring of the consideration paid in respect of the On-Sale (the Barclays Documents); and
  • Interbrew's dealings with KPMG about the CVR after 20 July 2012, when a call (the KPMG Call) was held between Interbrew and KPMG (the KPMG Documents).

Starbev challenged Interbrew's claim to withhold inspection of the Barclays Documents and KPMG Documents.

The law on litigation privilege: a refresher

In his judgment, Mr Justice Hamblen provided a convenient summary of the legal requirements for a claim to litigation privilege. These are as follows:

  • The burden of proof rests with the party seeking to assert privilege.
  • A witness statement asserting privilege and stating the purpose of the communication over which privilege is claimed will not be determinative. The court may require independent proof of the facts. The court will carefully scrutinise how the claim to privilege is made out and the witness statements should be as specific as possible2.
  • The party claiming privilege must establish that litigation was reasonably contemplated or anticipated. A mere possibility of litigation, a general apprehension of future litigation, or a distinct possibility that somebody might sue in the future is not enough.
  • The party must show that the communication was made for the dominant purpose of litigation.

The Barclays Documents

In the circumstances, Interbrew failed to prove that litigation was reasonably anticipated when it instructed Barclays. The Judge noted the following:

  • The witness evidence referred to a "suspicion" that Starbev had structured the subsequent sale of the business to eliminate the requirement to pay Interbrew deferred consideration. That suspicion did not amount to a reasonable anticipation of litigation: not until Barclays had conducted its investigatory work did Interbrew know whether there was any substance to that suspicion.
  • The witness evidence also stated that "it occurred to me that [Interbrew] would end up in another dispute with Starbev". This was also insufficient to connote a reasonable anticipation of litigation.
  • Contemporaneous documentation from the time Barclays was instructed clearly showed that Barclays' role was investigatory, and no more.

The KPMG Documents

The witness evidence was as follows:

  • KPMG had originally been appointed by Interbrew to conduct an "audit" of various notices sent by Starbev to Interbrew under the terms of the CVR.
  • During the course of that exercise, KPMG had identified further documents required to complete the audit. That information had been provided after the On-Sale and was discussed with KPMG on the KPMG Call, when it emerged that there were good grounds to suppose that Starbev's calculation of the Investment Amount was not accurate.
  • It became clear during the KPMG Call that Interbrew was likely to dispute Starbev's quantification of the Investment Amount, and the witness "anticipated that it might well end up in litigation".
  • Interbrew therefore "instructed KPMG to prepare a written report of its conclusions and the arguments that might be available to Interbrew to challenge Starbev's analysis, for the purposes of that prospective litigation".

Interbrew also relied on:

  • a history of post-completion disputes between the parties;
  • the fact that, after the KPMG Call, the communications from KPMG "followed and were responsive to privileged legal advice", and that KPMG was asked for its views on the potential quantum of the Investment Amount "on the basis that there would be an adversarial dispute"; and
  • one month later, Interbrew wrote what was (in substance) a pre-action letter to Starbev that was, to a great extent, reliant on KPMG's input.

The court held that litigation privilege did not apply to the KPMG Documents. The Judge was not satisfied that Interbrew had shown that litigation had become the dominant purpose of KPMG's work after the KPMG Call. Firstly, Interbrew's contentions that, after the KPMG Call, it anticipated litigation were contradicted by contemporaneous documentation that made no mention of such litigation. Secondly, had litigation been in contemplation, Interbrew's lawyers at the time would have been duty bound to advise Interbrew to preserve disclosable documents (and there was no evidence that this had occurred). Thirdly, even if KPMG's retainer (which made no mention of litigation) had changed after the KPMG Call, there was no record of this.

Interbrew suggested to the Judge that, if he was not satisfied as to the merits of the claim for privilege, he should inspect the documents himself. The Judge rejected that approach, stating to do so would be undesirable and a matter of last resort. If Interbrew's claim for litigation privilege was good, it should have been able to prove it without reference to privileged material.

Practical advice

Proving litigation privilege can be especially difficult in circumstances where investigatory work is undertaken (whether or not by third parties) before it is clear that litigation is in contemplation. To stand the best chance of later establishing litigation privilege, precautionary steps are advisable:

  • Bear in mind that, if your opponent challenges your claim to privilege, you will need to provide detailed witness evidence. That evidence needs to be supported by contemporaneous documentation, which should be consistent, for example:
    • draft retainer letters carefully to reflect the possibility of disputes arising in relation to the matter you are instructing the third party to investigate;
    • ensure that other contemporaneous material refers, where appropriate, to the existence of any current dispute and to the prospect of litigation; and
    • if the position hardens and what begins as a speculative investigation reveals cogent grounds for a claim, record that change (and update the retainer letter accordingly) to ensure later communications will attract protection.
  • If litigation privilege may not be available, lawyers should be involved, on an appropriate basis, to ensure that legal advice privilege is available wherever possible. In such a case, careful information flows need to be structured recognising the fact that legal advice privilege is not available for communications between a client and a third party.

Footnotes

1 [2013] EWHC 4038 (Comm).

2 Citing Tchenguiz v Director of the SFO [2013] EWHC 2297 (QB), where the court said that evidence relating to a claim for privilege should be subject to "anxious scrutiny in particular because of the difficulties in going behind that evidence".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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