We consider litigation privilege and the dominant purpose test. Litigation privilege stems from a principle that those engaged in/contemplating litigation should be free to gather evidence without a requirement to disclose that evidence to opponents.
For litigation privilege to apply, material must satisfy the four following criteria:
- it must be confidential
- it must be a communication between a lawyer (acting in a professional capacity) and his client or between the lawyer (acting in a professional capacity) or his client and a third party or be material created by or on behalf of the client or his lawyer
- it must be made for the dominant purpose of litigation
- litigation must be pending, reasonably contemplated or existing
The 'dominant purpose' test is one of dominance rather than exclusivity. To establish dominance, it is necessary to determine whether the dominant purpose is litigation.
It is common to produce documents for more than one purpose. The court may therefore closely and objectively scrutinise the purpose for which the document is created.
The recent decision of Tchenguiz and another v Serious Fraud Office and others  EWHC 2297 has demonstrated the high threshold imposed by UK courts when applying the dominant purpose test to establish whether a document attracts litigation privilege.
Tchenguiz arose out of the Icelandic banking crisis of 2008. The Serious Fraud Office (SFO), investigating the collapse of the Icelandic bank Kaupthing, used its statutory powers to demand information from companies related to individuals suspected of syphoning off millions of pounds from the bank.
The joint liquidators of one of these companies instructed Grant Thornton to produce reports, which were reviewed by the SFO. The information taken from the reports formed part of the basis of the SFO's application for search orders and arrest warrants against the individuals.
After the individuals were released without charge, they brought a claim against the SFO on the basis that its investigations had been carried out unlawfully, and applied for a third party disclosure order against the joint liquidators requiring disclosure of the reports.
The court found that the reports did not have the benefit of litigation privilege. It is a well established principle that a document will not attract litigation privilege, and therefore be exempt from the requirement to make relevant documents available for inspection in proceedings, merely because it is created for the purpose of obtaining information or advice in connection with pending or contemplated litigation. Instead, a party seeking to claim litigation privilege must also show that this was the dominant purpose for the document being produced.
Documents produced for a dual purpose prove particularly problematic for parties attempting to assert litigation privilege. The courts have traditionally taken one of two possible interpretations in this scenario: either seeing apparently separate purposes as components of a single overarching purpose related to litigation - as with insurers commissioning reports into the cause of a fire which damaged an insured's business, for the overarching purpose of obtaining legal advice about whether the insured's claim was fraudulent - or finding that the two purposes are in fact distinct.
The court in Tchenguiz chose to take the latter route. In the court's view, the original and primary purpose of the liquidators was to 'identify what (if any) assets or liabilities exist[ed] or perhaps what legal proceedings might possibly be brought'. The fact that the reports were later used for and in connection with pending or contemplated litigation was not enough to establish a claim for litigation privilege.
By the court's own admission, Tchenguiz demonstrates the 'relatively high threshold' applied by the courts in dual purpose cases, and the danger of assuming that internal documents will be covered by litigation privilege.
The important point in time is the initial creation of the document. Businesses commissioning reports where future litigation is a possibility must take particular care in considering whether such documents will be privileged, particularly in cases where there is an alternative purpose such as a statutory duty behind the report.
The case for litigation privilege needs to be clearly set out in the document itself, along with concrete details about what litigation is contemplated and against whom. Vague statements will not suffice. Equally, it will be the genuine purpose behind the creation of the document rather than any label attached to it that will determine whether litigation privilege applies, so care should be taken to ensure that the case put forward is accurate and convincing and legal advice should be taken where there is any uncertainty.
Taking steps such as these should help to ensure that internal investigations can be protected from coming out into the open.
If you are in any doubt about what to do, seek legal advice.