Practical Guide for Claims Managers in 2022 - Part 6

Introduction

In our sixth monthly edition of our Practical Guide for Claims Managers we consider legal professional privilege. We summarise the types of privilege most often arising in the context of giving and receiving legal advice, consider how those types of privilege work, and suggest practical takeaways for maintaining privilege.

Privilege entitles a party to withhold information / documentation from inspection by a third party or the court / tribunal. Although evidence which is subject to privilege may be written or oral, privilege is usually considered in the context of written documents. For most types of privilege, once privilege has been established, a right to withhold the document in question arises, inspection will not be ordered in the context of any document disclosure process, and no adverse inference may be drawn as a consequence of the withholding. However, privilege can be lost or waived, and we discuss how this might happen below.

This Practical Guide explains how the English law on privilege will apply to protect documents and other evidence from disclosure in proceedings in the English courts and in arbitrations where English procedural law applies. It is important to bear in mind that different rules will apply under other systems of law, so information which is privileged under English law may not be privileged in proceedings in other jurisdictions.

Types of Privilege

Different types of privilege may arise, depending on the context. Claims Managers are most likely to encounter the following:

Legal Advice Privilege

This applies to confidential communications between clients and their lawyers for the dominant purpose of seeking or giving legal advice. Legal advice privilege therefore allows a client to place unrestricted confidence in their lawyer. Legal advice privilege may also extend to material which reveals the substance of privileged confidential communications (for example a note of a call between a lawyer and a client).

Litigation Privilege

Litigation privilege applies to communications which have been created for the dominant purpose of litigation which is pending, reasonably contemplated or existing. Litigation in this context includes court proceedings and other adversarial proceedings, including arbitrations, where English procedural law applies.

Communications to which litigation privilege attaches can be shared not just between clients and their lawyers but between either of them and third parties (for example witnesses).

Litigation privilege can also apply to confidential documents which are created by the client, lawyer or a third party to enable legal advice to be sought or provided in relation to litigation, even if the document is not sent.

Joint Privilege

Joint privilege may apply where two or more parties have instructed the same lawyer under a joint retainer or have a joint interest in the subject matter of a privileged document at the time of its creation.

In general terms, joint privilege gives the clients under a joint retainer, or a client and third parties with a joint interest, privilege they can assert against the rest of the world in respect of a document to which it applies. However, they cannot assert privilege against each other in respect of any dispute arising between them.

Common Interest Privilege

Common interest privilege applies to documents that are already privileged by reason of legal advice privilege or litigation privilege applying to them and which are then disclosed to third parties who have a common interest in the subject matter of the document, or a common interest in litigation for which the document was brought into existence. Common interest privilege therefore provides an exception to the general rule that disclosure of a privileged document to a third party will typically waive the privilege in that document. The common interest must exist at the time the privileged document is disclosed to the third party.

Common interest does not give third parties their own rights of privilege, but a third party can assert the disclosing party’s rights of privilege in respect of a disclosed document against the rest of the world.

Recognised categories of relationships in which common interest privilege has been held to apply include: co-defendants; insurer and insured; parent companies and subsidiaries; and agents and their principals. It is advisable to put in place an express confidentiality and non-waiver agreement setting out the purpose for which disclosure is made to a third party with common interest.

Without Prejudice Privilege

Without prejudice privilege generally prevents documents or oral statements from being put before the court if they were made in a genuine attempt to settle an existing dispute. (Where documents or oral statements are made "without prejudice save as to costs", they are not admissible in the substantive dispute but will be so in any dispute as to costs.)

The documents or oral statements do not have to be communicated by or to a lawyer to attract without prejudice privilege (eg in the event that one or more party is not legally represented). There does, however, need to be a dispute in respect of which the communication is made - one purpose of without prejudice privilege is to encourage parties to reach a resolution out of court without fear of harming their case. Without prejudice privilege will not apply to a finalised settlement agreement, because by that stage the dispute has been resolved.

This form of privilege is not absolute and there are scenarios in which without prejudice communications may be admitted into evidence, eg where misrepresentation, fraud or undue influence, or the reasonableness of a settlement is in issue, or to explain delay in legal proceedings.

Key questions we are often asked include:

1. What are the main differences between legal advice privilege and litigation privilege?

Legal advice privilege only applies to communications between clients and lawyers, but litigation privilege can also apply to communications between a client and/or a lawyer and third parties, such as fact or expert witnesses in current or contemplated litigation proceedings.

In addition, legal advice privilege applies to both contentious and non-contentious matters, whereas litigation privilege only applies to contentious matters (ie it may only arise when litigation is reasonably contemplated, pending or existing). It is worth noting that these two types of privilege are not mutually exclusive and it is possible for a communication between a client and the lawyer to be protected by both at the same time.

2. Who is a lawyer for the purposes of legal professional privilege?

For the purposes of both legal advice privilege and litigation privilege, the definition of lawyer includes all members of the English legal profession including solicitors, barristers, and in-house lawyers with a current practising certificate, as well as foreign-qualified lawyers. It also includes trainees and paralegals working under the supervision of a qualified lawyer.

Correspondence to or from lawyers (or with lawyers in copy) will only be privileged if it satisfies the other requirements for either legal advice privilege or litigation privilege.

It will be important to make clear that the main reason for the communication is to seek legal advice and/or to identify the legal advice being sought or given. Mixing communications relating to both commercial and legal functions should be avoided. Communications relating to purely commercial, non-legal advice will not attract privilege (see further the discussion at Question 6 below).

3. Who is a client for the purposes of legal advice privilege?

It is important to consider who is the "client" – whether from the perspective of the person with whom the lawyer is communicating, or in the context of the legal advice being shared by the client within its wider business. The definition of client does not generally include all employees within a client company or organisation: it is usually restricted to a smaller group of people who are responsible for receiving legal advice on the company's behalf ie the "internal client". This is based on the decision in the case of Three Rivers (No 5) [2003] EWCA Civ 474, which set out a narrow definition of "client".

Whilst this case has not been overturned, the narrow definition of "client" has received negative commentary in subsequent Court of Appeal cases such as R. (on the application of Jet2.com Ltd) v Civil Aviation Authority [2020] EWCA Civ 35). The Jet2.com case held that a lawyer’s communication can be shared or discussed within the client organisation, even outside of the narrowly defined "internal client", without waiving legal advice privilege. This case acknowledged the practical reality that other people within an organisation need to be able to receive legal advice without losing privilege. However, this only applies where the internal communication is for the purposes of the business, and records or discusses the legal advice. The confidentiality of any legal advice disseminated in this way should, where possible, be expressly maintained.

Communications within the client organisation going the other way, ie the gathering of information from the business to be given to a lawyer for the purpose of obtaining legal advice, may not attract privilege if the gathering is done by individuals who are not part of the internal client. It should therefore not be assumed that everyone internally will benefit from legal advice privilege when communicating with lawyers. It is important to be as clear as possible on who the "client" is, ie the team of people instructing the lawyer, and to restrict communications to/from the lawyer to that team of people.

4. When is litigation considered to be pending or reasonably contemplated for the purposes of litigation privilege?

As noted above, litigation privilege applies to communications which have been created for the dominant purpose of litigation which is pending, reasonably contemplated or existing.

Litigation must at least be in reasonable prospect: there does not need to be a greater than 50% chance of litigation (or other adversarial proceedings, eg arbitration) taking place, but there must be more than a mere possibility (USA v Philip Morris Inc and British American Tobacco (Investments) Ltd [2003] EWHC 3028 (Comm)).

In the recent case of Kyla Shipping Co Ltd and another v Freight Trading Ltd and others [2022] EWHC 376 (Comm) communications between lawyers, third parties and experts were not privileged because litigation was not in reasonable prospect. The claimants had instructed an expert auditor “to provide ballast” in their correspondence in connection with a separate prior dispute. The auditor’s investigation into the earlier dispute uncovered the issues that led to the dispute in question. The judge held that the dominant purpose of instructing the expert in the prior dispute was not for litigation that was in reasonable prospect, because there was no indication in the correspondence that proceedings were envisaged in relation to that prior dispute and that dispute involved different parties. The judge also noted that the instruction of the expert to provide “ballast in the correspondence” did not establish a claim for litigation privilege as the "dominant purpose" test considered below was not satisfied.

The dominant purpose test also applies to loss adjuster reports: such reports would only be protected by litigation privilege if they were created for the dominant purpose of litigation which is pending, reasonably contemplated or already in existence.

5. What is the dominant purpose test?

The dominant purpose test applies to both legal advice privilege and litigation privilege.

To attract legal advice privilege the document or communication must have been created for the dominant purpose of seeking or giving legal advice (R. (on the application of Jet2.com Ltd) v Civil Aviation Authority [2020] EWCA Civ 35).

Documents that pre-existed the seeking of legal advice will not become privileged by being attached to a request for legal advice. The dominant purpose of communications within and attachments to an email chain will be considered separately.

To attract litigation privilege the document or communication must have been created for the dominant purpose of enabling legal advice to be given or received in relation to the litigation, or collecting evidence for use in the litigation. This can include deciding whether to litigate and whether to settle the dispute giving rise to the litigation but does not extend to purely commercial discussions.

A court will consider the purpose of a document objectively. Documents may be created for more than one purpose and, if a document comes into existence for two equal purposes, ie without litigation being dominant, it will not attract litigation privilege. It will be for the party claiming privilege to establish that the dominant purpose of the document or communication being created was litigation.

6. What is "legal advice" for the purpose of a claim for privilege?

"Legal advice" for the purpose of legal advice privilege includes commercial advice given by a lawyer in a “relevant legal context” ie in relation to a matter on which legal advice is being given (Three Rivers No 6 [2004] UKHL 48). This includes giving advice in a commercial context through a lawyer's eyes. Most work undertaken by a lawyer is likely to have a “relevant legal context”, such that communications are protected by legal advice privilege. However, if there is no legal context, purely commercial advice will not attract legal advice privilege.

Where a document has been created for the dominant purpose of seeking or giving legal advice, the continuum of communications will also attract legal advice privilege eg communications aimed at keeping both parties informed so advice can be sought in the future, records of the advice, or communications passing on or applying that advice internally.

7. Does a document need to be confidential to attract privilege?

Generally speaking, yes. Confidentiality is certainly a requirement for legal advice privilege, and it is also generally a requirement for litigation privilege, although the position is more nuanced if a communication has taken place with a third party (for example, litigation privilege can apply where, in preparing strategy for litigation, a lawyer obtains information from third parties, such as factual or expert witnesses, who do not insist on confidentiality over the information they impart).

If a document becomes available to the general public, it is no longer confidential, and cannot be privileged. Similarly, documents disclosed to an opposing party cannot attract either legal advice or litigation privilege, although without prejudice privilege might apply where relevant communications were made in a genuine attempt to settle an existing dispute.

Certain documents are not confidential and cannot attract privilege, such as attendance notes of meetings where both parties are present, or attendance notes of calls between lawyers on both sides, unless the notes contain additional annotations by the lawyers.

8. Is there a benefit to labelling a communication as privileged?

Labelling a document or communication as privileged does not create privilege, but it may help to demonstrate that the intention was for the document or communication to be privileged when it was created. It may also help identify privileged or potentially privileged materials during document review exercises, for example in the context of disclosure in dispute proceedings.

For without prejudice privilege, the lack of a without prejudice label has been considered material to the question of whether the document was privileged. It is therefore important to use a without prejudice label in the context of without prejudice communications.

9. How can privilege be lost or waived?

As an overarching comment, legal professional privilege belongs to the client and not to the lawyer. The lawyer remains under a professional obligation to claim privilege, unless or until the client chooses to waive privilege. Legal professional privilege will survive the death of the client (where the client is a natural person) and can be asserted by a successor in title.

Privilege lasts forever unless confidentiality in the document is lost or privilege is waived.

If the document enters the public domain it can no longer be privileged. However, if it is disclosed to a small group, it may be privileged as against people outside of that group. As discussed above, care must be taken when disseminating privileged information within the client organisation to ensure that documents remain confidential and privileged in the hands of the "client". Even more care needs to be taken when disclosing privileged information to external recipients outside the client organisation, for example to brokers, loss adjusters, external witnesses, or outwards reinsurers. This will typically only be advisable when a common interest applies between the disclosing party and the recipient, or where the communication can be said to be for the dominant purpose of existing, pending or contemplated litigation, or (potentially) where the disclosure is on a limited and expressly confidential basis.

Privilege may be waived if documents are used in litigation. Pleadings, witness statements and expert reports will cease to be privileged when they have been served. Privilege may also be waived in documents which are referred to in pleadings, witness statements or expert reports. If a document is to be disclosed but it is desired that privilege be maintained, appropriate and clear express terms should be used. The recipient should be required to undertake that they will treat the document as confidential, acknowledge that the document has only been provided for a specific purpose, and that privilege has not been waived for any other purpose.

A waiver of privilege can be implied, for example if a claim is brought by a client against its lawyer in which privileged documents would need to be relied upon by both claimant and defendant, privilege in those documents may be impliedly waived by the client.

Waiver may be collateral, for example where a party has chosen to waive privilege over one document but is obliged to disclose other documents to provide a full picture.

Where waiver occurs inadvertently – ie where a party inadvertently allows a privileged document to be inspected by another party – the document may only be relied upon by the other party with the permission of the court (CPR 31.20).

It should be noted that without prejudice privilege operates differently to legal professional privilege. Generally, without prejudice privilege can only be waived if both parties to the negotiations waive their right to such privilege, although there are other scenarios in which without prejudice communications may be admitted into evidence, as described above.

10. How are privileged documents dealt with in disclosure?

Privileged documents must be referred to in disclosure lists and the privileged documents are withheld from inspection. (Usually they can be referred to in general terms and won’t need to be listed individually.) If a document contains both privileged and non-privileged content, the whole document may be privileged if the privileged and non-privileged parts cannot be separated out. Alternatively, the document will be disclosable with the privileged sections redacted.

Practical Takeaways

Here are our top tips to protect privilege:

• Be clear on who the "client" is: Ensure that only colleagues who are part of the team instructing the lawyers communicate with the lawyers, with third parties, or with employee witnesses, as other communications may not attract legal advice or litigation privilege. Consider putting in writing a non-exhaustive list of the individuals who are part of the "client team", whilst leaving it open for this list to change as the matter progresses.
• Do not assume that simply copying in a lawyer will make the correspondence privileged: the communication must, in substance, satisfy the legal test for privilege.
• In-house lawyers should maintain their practising certificates, or ensure they are supervised by a lawyer with a practising certificate, so that they fall within the definition of “lawyer” for the purposes of privilege.
• Ensure that communications to and from in-house lawyers are created for the dominant purpose of giving or receiving legal advice, as opposed to advice on purely commercial issues that don’t have any legal context. Mixing legal and non-legal topics in the same communication may complicate things, so it is advisable to split them out into separate communications where possible.
• Take care when embarking on evidence gathering exercises within your organisation: communications created for such a purpose may not be privileged. Take legal advice as to how best to approach such an exercise.
• Be aware that communications with third parties, such as brokers, expert witnesses, loss adjusters, or outwards reinsurers, are generally not privileged unless litigation privilege, common interest privilege, or without prejudice privilege applies at the time of the communication. Take legal advice before disclosing a privileged document to a third party, if it is intended that privilege is to be maintained.
• Be aware that internal communications which are prepared to discuss settlement options may not be protected by privilege. Privilege will be more likely to apply if such communications directly refer to legal advice on the issues.
• Mark communications that are intended to attract privilege as such. Communications intended to attract without prejudice privilege should be marked "without prejudice".
• Ensure the confidentiality of privileged documents is maintained through proper training of staff and effective procedures.

This publication is intended as a general overview and discussion of the subjects dealt with under English law at the time of original publication and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation.