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Watch out! Internal settlement negotiations may not always remain "internal"

19 December 2018. Published by Davina Given, Partner and Suzan Kurdi, Senior Associate

Clients who believe that their internal "confidential" discussions to settle a case will always remain within their company's four walls are in for a shock. The Court of Appeal has found that communications discussing a commercial proposal to settle an existing dispute are not privileged- WH Holding Limited (1) West Ham United Football Club Limited (2) v E20 Stadium LLP.

The dispute and litigation privilege

West Ham and E20 were in dispute over the number of seats in the London Olympic stadium that West Ham were entitled to use. E20 board members exchanged emails about settling the matter on 30 January 2017. During a pre-trial application, E20 claimed litigation privilege in respect of those emails on the basis that they were created "with the dominant purpose of discussing a commercial settlement of the dispute" at a time when litigation was in contemplation. 

The judge at first instance found that the emails had the protection of litigation privilege on the basis that discussions with the dominant purpose of formulating and proposing the settlement of litigation that is in reasonable contemplation or in existence are protected by litigation privilege.[1] 

 The application found its way to the Court of Appeal.[2]

The Court of Appeal's decision

The Court of Appeal's starting point was the House of Lords decision in Three Rivers DC v Governor and Company of the Bank of England (No 6)[3]. For litigation privilege to apply to communications they must pass between the parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation.

The emails discussing the proposed commercial settlement were not created for the dominant purpose of obtaining information or advice, in the sense that information was not being solicited for the purposes of the litigation and no legal advice was being sought. As such, the claim for litigation privilege failed at the first hurdle. Crucially, the court dismissed an argument by E20 that there was privilege for internal communications within a corporate body; there is no separate head of privilege for those communications.

So where are we today?

  1. Litigation privilege is engaged when litigation is in reasonable contemplation.
  2. Litigation privilege covers communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with the conduct of the litigation, provided it is for the sole or dominant purpose of the conduct of the litigation.
  3. Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation.
  4. Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege.

What does this mean for clients?

The court was at pains to emphasise that privilege is an inroad into the principle that a court should be able to decide disputes with the aid of all relevant material.  As such, it did not consider it justified to extend (as it saw it) the scope of litigation privilege to purely commercial discussions which did not fall into the recognised categories of advice or information going to the merits of the contemplated litigation. 

However, it is difficult to follow the court's analysis and its (over)emphasis on Three Rivers requirement for the communication to be seeking or giving information or advice.  Although we do not know what the documents said, it seems likely that they were sent to elicit, expressly or implicitly, the views of E20's board members on the settlement proposals.  Why those views were not – or could not be – information sought for the dominant purpose of settling the litigation is unclear.

The decision is not being appealed to the Supreme Court so, for now, those engaged in litigation should take care (i) not to commit to writing their commercial discussions on settlement; and (ii) to frame their settlement discussions in terms of the legal advice they have received on the litigation risks.

References

[1] SFO v Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006

[2] [2018] EWCA Civ 2652

[3] [2004] UKHL 48