The COVID-19 pandemic has brought with it huge challenges for businesses dealing with ever more difficult trading conditions, while trying to safeguard the health and safety of employees and customers. All of this against a background of rapidly changing law, regulation and guidance.
The focus has been on keeping business going and not, of course, on the prospect of litigation in the future over decisions taken now. Like it or not, however, it seems inevitable that litigation will follow such a major disruption of the global economy. That was the case following the global financial crash in 2008-2009 and, if anything, the prospects seem greater now, particularly with the growth in recent years of class actions and litigation funding.
The outcome in commercial cases usually turns on contemporaneous material. Documents created now will be highly relevant in future litigation. So, what will and will not need to be disclosed, and in particular, what documents will be privileged?
The tests for litigation privilege and legal advice privilege are, on the face of it, simple and well known. For litigation privilege to apply, litigation must be in reasonable prospect and the dominant purpose of the communication must be that litigation. For legal advice privilege, you need a lawyer-client communication for the dominant purpose of seeking or giving legal advice. How these tests apply in the context of day to day business communications is, however, far from simple.
One issue a business may be grappling with is whether it can comply with its contractual obligations and, if not, whether it can end contracts relying on any express contractual provisions, force majeure clauses or common law frustration. This has been a common enough scenario in recent weeks, with gaps in the supply chain, absence of key staff, and ever-changing government regulation with which to comply.
Is litigation in reasonable prospect in these circumstances so that litigation privilege may apply? Well, it may or may not be. For litigation to be in reasonable prospect, there needs to be more than a mere possibility of litigation, but not necessarily more than a 50% likelihood. If a business is reviewing all of its contracts, in the expectation that litigation might follow with some counterparties if it stops performing, that almost certainly won’t meet the test. On the other hand, if there are already conversations with a particular counterparty, with each setting out contradictory views on contractual provisions, that may well fall on the other side of the line.
Even if litigation is in reasonable prospect, there is still the second part of the test, dominant purpose, to satisfy. A common mistake is to think that if litigation is in prospect then everything created from that point onwards is protected, when that’s clearly not the case. So, say the accounts section is asked to prepare costings and profit projections for performance of a contract based on different scenarios, including using alternative (more expensive) raw materials. That could well be relevant material in a later dispute over whether the pandemic meant that the contract could not be performed for reasons of force majeure, or was merely more expensive to perform, which generally won’t be sufficient for force majeure to apply. It may well be difficult to say, some years later, that the dominant purpose of preparing those documents was for anticipated litigation, rather than for general business purposes, looking at the company’s financial position and options.
Legal advice privilege
If litigation privilege doesn’t apply, then what about legal advice privilege? The restrictive interpretation of legal advice privilege in case law means that the scope of protection is very narrow. The communication needs to be between a lawyer and a client and, following Three Rivers No 5 and the cases in recent years which have (reluctantly) followed it, “client” is interpreted restrictively. Only those in the business tasked with obtaining legal advice fall within the definition of “client” for these purposes. The costings and profit projections are unlikely to have been prepared by a “client” in this narrow sense, even if prepared in order for someone who is the client, say the board, to take legal advice. So, even if they are sent by the accounts section to a lawyer, they won’t be privileged under legal advice privilege.
The problems with legal advice privilege don’t stop there. Even if there is a communication between a client and a lawyer, it must be for the dominant purpose of obtaining legal advice, so if the lawyer is providing commercial input rather than legal advice, that would not be protected by privilege. It isn’t always easy to establish whether legal advice is being sought, particularly in an in-house context where a lawyer is being asked for input generally, some of which is commercial input and some of which is legal advice. What amounts to legal advice is construed widely, in that it includes what should be done in the relevant legal context, but that won’t mean all input from a legal advisor is necessarily protected.
And all of these problems are compounded where you have a multi-addressee email, sent to legal advisors and others in the business. Trying to work out who is communicating with whom for what purpose, and who is just being copied for information, can be a nightmare. And how you approach this is arguably even less clear than before after the Court of Appeal decision in Jet2.
Looking forward, what can businesses do to try to preserve privilege over emails and other documents in the context of fast-moving events and decision-making in a crisis? Particularly in areas where any future litigation is likely to be in the English courts? Key points I would suggest are:
- Remind the business of the rules on privilege, in particular that there is no magic bullet in copying in a lawyer.
- Be clear on when litigation is likely to be in reasonable prospect, document this and put a document hold in place, stopping the destruction of relevant material.
- Mark emails (and other documents) as privileged where this is the case. This is not determinative but will be good evidence later and makes the writer stop and think about whether their email will be privileged.
- Try not to mix a request for legal advice and commercial input in the same email chain.
- Try to limit communications with the lawyers to those within the “client” as narrowly interpreted at the moment.
Overall, be aware that if there is no litigation in reasonable prospect, then very few emails sent by non-lawyers in the general business are likely to be privileged. It’s worth everyone bearing this in mind when putting (electronic) pen to paper.