Which Dispute? The Limits of Litigation Privilege

Lawyers often assume that correspondence with their advisory experts is protected by legal professional privilege, but that is not always the case. In a recent decision concerning multiple disputes, the Commercial Court has emphasised the need to consider carefully when an advisory expert was engaged, and in relation to which precise dispute, before asserting privilege over documents connected to their work.

The status of correspondence between a lawyer and an expert witness is not normally a matter of controversy. Part 35 of the Civil Procedure Rules (CPR) make it clear that instructions given to an expert are not protected by privilege, although the court will not generally order disclosure of any specific part of them. This is because all instructions received by an expert, whether in writing or orally, should anyway be summarised in their report (CPR 35.10).

However, this assumes that the expert is going to give evidence to the court. Where the expert is acting in a purely advisory capacity, helping a party and its lawyers prepare for proceedings without ever becoming directly involved in them, the rules in Part 35 do not apply (see the narrow definition of ‘expert’ in CPR 35.2(1)).  In these circumstances, it is not always clear whether communications between a party’s lawyer and its expert need to be disclosed to an opponent or are protected by litigation privilege. This depends on the timing of the communications, but also on other factors. 

In Kyla Shipping Co Ltd and another v Freight Trading Ltd and others [2022] EWHC 376 (Comm), the Commercial Court considered this question in relation to an expert audit of 41 forward freight agreements that had allegedly been mismanaged. When Kyla engaged the expert, it hoped that the audit would “make good any legitimate grievance that might exist” and provide “ballast in the correspondence” with those it blamed for the mismanagement. In fact, the audit uncovered other facts too, giving rise to a separate dispute, this time concerning an alleged mispricing fraud. It was that dispute which was the focus of the current proceedings. 

In this case, the Claimants asserted privilege over documents relating to the audit, but this was challenged by three of the four defendants. 

Principles applied

To attract litigation privilege, communications between a party (or its lawyer) and an expert or other third party must be confidential, and also:

• relate to litigation (or equivalent proceedings) that was ‘reasonably in prospect’ at the time, and
• be created for the dominant purpose of that litigation.

In Kyla Shipping, the court noted that the expert had initially been hired only to add “ballast” to correspondence about the management issue, and that correspondence is not the same as litigation.  There was also no suggestion in the correspondence that court proceedings (or a counterclaim in proceedings) was envisaged in relation to the management issue. Therefore, the criteria for litigation privilege were not met, at least in relation to the earlier documents. 

A further and more fundamental problem was that litigation privilege was being asserted, not in connection with the mismanagement dispute, but in connection with a different dispute altogether - the one concerning allegedly fraudulent mispricing. The two disputes were related, but nevertheless distinct, and the prospect of the mispricing claim being litigated arose only some time later. In fact, this was a result of the expert’s involvement, not the cause of it. 

For these reasons, the assertion of litigation privilege over papers relating to the “ballast” exercise was doubly inappropriate, and the court held that the claim for litigation privilege would not work in its present form. The claimants were therefore ordered to reconsider their claim for privilege and to serve a revised list of documents supported by a confirmatory witness statement from an appropriate solicitor. 

Waiver 

Another question addressed by the court was whether the Claimants had waived privilege in later documents by referring to them in a witness statement. This had been made by a solicitor in support of an application to serve proceedings outside the jurisdiction. The defendants argued that privilege had been waived because the statement explained the steps by which the alleged mispricing fraud was discovered, and that explanation was based on the documents in question.

On this issue, the court sided with the Claimants. The authorities on waiver were inconsistent and difficult to rationalise, but a key consideration was fairness, having regard to the specific facts of the case. Since the explanation had been provided for a limited purpose and the solicitor did not rely on (or even refer to) any specific document in his statement, it did not seem fair to hold that privilege had been waived. On the contrary, it was “clear cut” that no waiver had occurred. 

A double warning

Of course, privilege should never be claimed lightly. The Disclosure Pilot Scheme[1] emphasises the point, requiring legal representatives to “undertake a review to satisfy themselves that any claim by [their client] to privilege from disclosing a document is properly made and the reason for the claim to privilege is sufficiently explained” (PD51U para 3.2(5)). This reflects best practice generally.  However, it is often unclear which documents are protected by litigation privilege in particular. On the face of it, this kind of privilege is broader in scope than legal advice privilege, since it applies to communications between a wider range of people than just lawyers and their clients. However, where disputes evolve over time, spawning new causes of action and sometimes drawing in new parties, the relevant legal principles can be difficult to apply, as this case shows. 

More broadly, the decision illustrates the dangers inherent in getting advisory experts involved at an early date, particularly if they are engaged in a “fishing expedition”, as the defendants put it, or when it is not clear which precise issues are in dispute or whether they will be litigated. What the expert uncovers may be very useful, and even form the basis of new claims, but early correspondence with the expert, and their initial report, may not be privileged and might cause embarrassment when disclosed at a later date. Where practical, it may be best to communicate orally with an advisory expert until such time as litigation privilege clearly applies. 

The decision in this case is of particular interest because the sitting judge was Charles Hollander QC, author of the well-known textbook, Documentary Evidence (14^th edition, publ. Sweet & Maxwell 2021), one of the leading commentaries on privilege and disclosure generally.

The view from China

Nicholas Lum of our Shanghai office explains that, by way of comparison, the position under PRC law is quite different.

As a starting point, under PRC law, parties are only required to disclose those documents which support their respective claims or defences. This is dissimilar to most common law countries (including England), where parties are required to disclose all the documents in their possession, custody, or control, which are relevant to the issues to be determined in the Court proceedings.  

Secondly, the concept of privilege (as is understood under common law) does not exist under PRC law. To that end, legal professional privilege is not applicable in Mainland China. Having said that, legal representatives in the PRC have an obligation of confidentiality to their clients in respect of information obtained in the course of their legal professional activities. This duty, however, does not necessarily apply if information or documents are sought directly from the client or a third party.

If you require further information with regard to the position on disclosure and privilege in the PRC, please feel free to contact Nick directly.