It is a natural function of executives to seek to manage the relationships with the entities they conduct business with, and where necessary to endeavour to resolve any dispute that might arise. However, following a recent Court of Appeal decision on the subject of litigation privilege[1], businesses will need to tread very carefully when taking steps to resolve a commercial dispute if they are not to find themselves seriously prejudiced in later litigation where negotiations fail.

The Hole at the Heart of Litigation Privilege.png

Litigation privilege is the doctrine whereby certain documents made for the dominant purpose of litigation do not have to be disclosed to a party’s opponent. Unlike legal advice privilege the documents do not have to be communications between parties and their lawyers. Thus they can be internal communications or communications with third parties. The doctrine is designed so that a party can prepare its case – claim or defence – without the risk of being forced to disclose the substance of those preparations to its opponents. But the Court of Appeal’s decision has revealed the big hole at the heart of the doctrine.

The Court of Appeal approved the following general statement as to when litigation privilege protects documents (Para 16 of the Judgment):

“… where they have come into existence after litigation commenced or in contemplation, and when they have been made with a view to such litigation, either for the purpose of obtaining advice as to such litigation, or of obtaining evidence to be used in such litigation, or of obtaining information which might lead to the obtaining of such evidence…”.

However certain documents which were created by the defendant, "with the dominant purpose of discussing a commercial settlement of the dispute when litigation … was in contemplation”, were found not to be subject to litigation privilege, and were thus disclosable.

Some might find this to be a startling outcome. Amongst other things it means that:

Wherever parties record internal settlement discussions, the records of those discussions may be disclosable to the opponent save where lawyers are involved for the purpose of obtaining their advice; and
As part of the disclosure process in litigation and arbitration, parties may be obliged to search for and disclose to their opponents right up to and including the final hearing internal documents concerning possible settlement.

This is not in fact new law, as the Court of Appeal specifically confirmed (Para 18 of the Judgment). But however surprising it may be that parties are unable to consider in complete confidence the possible settlement of claims, unless their lawyers are involved, that is likely to be the effect of the decision. Thus before parties begin to consider settlement of any claims, before or after proceedings have been commenced, whether they are claimant or defendant, and particularly before they document those considerations in any way, they should seek specific legal advice.