Discussing settlement options: minding the gap between litigation privilege and the without prejudice rule
By Maura McIntosh
In WH Holding Ltd v E20 Stadium LLP, the Court of Appeal rejected a claim to litigation privilege in respect of emails between a company’s board members discussing a commercial proposal for the settlement of a dispute.
The decision exposes an awkward gap in the protection afforded to documents prepared for the purpose of settling a dispute, which threatens to undermine the public policy underlying the without prejudice (WP) rule; namely, to encourage parties to settle their disputes rather than litigating them to a finish. And the difficulties don’t end there. Given the court’s narrow application of the dominant purpose test for litigation privilege, there may be many other sorts of documents that parties would have assumed would be covered by the principle but which are not, in fact, privileged.
Unfortunately, the Supreme Court will not have the opportunity to consider these issues, at least in this case, as the broader dispute was settled before trial.
The dominant purpose test
For a communication or document to be covered by litigation privilege, it must have been created for the dominant purpose of litigation which is reasonably in prospect. That much has long been clear.
What has been less clear is the precise nature of the required purpose. Lord Carswell summarised the position in Three Rivers No. 6, saying that litigation privilege applies to communications for the purpose of “obtaining information or advice in connection with existing or contemplated litigation”, but only when made for the sole or dominant purpose of “conducting” that litigation. So did that mean a strict test of obtaining advice or information, or a broader test of conducting the litigation?
In WH Holding, the Court of Appeal held that the strict test applies, overturning the decision of Norris J at first instance. In the Court of Appeal’s judgment, to fall within litigation privilege, a communication must be prepared for the dominant purpose of obtaining advice or information in relation to the conduct of litigation. It is not sufficient that it is for the dominant purpose of conducting litigation, in a broader sense.
The court commented that it was not shown any authority which would extend the scope of litigation privilege to purely commercial discussions. However, in Single Buoy Moorings Inc v Aspen Insurance UK Ltd, Teare J held that litigation privilege applied to internal discussion of proposals to settle which involved the assessment of those proposals in commercial terms. There is no indication that this decision was cited in WH Holding.
Settling litigation
At first instance in WH Holding, Norris J found that a narrow formulation of the dominant purpose test was inconsistent with SFO v ENRC, in which the Court of Appeal held that the purpose of avoiding or settling a dispute was as much protected by litigation privilege as defending a dispute.
However, the Court of Appeal disagreed. It accepted that SFO v ENRC had confirmed that the conduct of litigation includes its avoidance or compromise, but said the judge was wrong in thinking the decision had gone any further. In particular, it did not remove the further requirement that the communication in question was prepared for the dominant purpose of obtaining advice or information relating to the conduct of the litigation (including its settlement)