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Litigation privilege and the ‘dominant purpose’ test: ENRC decision applied

07 January 2019

Did last year’s landmark Court of Appeal decision in Serious Fraud Office (“SFO”) v Eurasian Natural Resources Corporation Limited (“ENRC”) alter the application of the ‘dominant purpose’ test for litigation privilege where a document is brought into existence for multiple purposes, one of which is for use in litigation? The answer is ‘no’, according to a recent decision by the High Court. The Court confirmed the well-established principle that, for a claim to litigation privilege to succeed where a document is created for more than one purpose, litigation must be shown to be the dominant purpose on the facts.

Background

In Sotheby’s v Mark Weiss Ltd and others, Sotheby’s had sold a highly valuable portrait for Mark Weiss Limited (“MWL”). The contract provided that Sotheby’s could rescind the sale and return the purchase price to the purchaser if the purchaser provided evidence challenging the painting’s authenticity or attribution and Sotheby’s ultimately determined that the painting was fake. That is what happened here.

After the sale, the purchaser obtained a report from one art expert and Sotheby’s commissioned a ‘peer review’ report from another, both reports concluding that the painting was counterfeit. Sotheby’s then refunded the purchase price to the purchaser and commenced proceedings against MWL, seeking rescission of its contract with MWL and repayment of the purchase price.

In the course of proceedings, Sotheby’s disclosed its correspondence with the two art experts, but withheld inspection on the grounds of litigation privilege (you can read more about kinds of privilege and the general principles in our guide here). MWL made an interim application to the High Court for inspection of that correspondence.

ENRC considered

Sotheby’s argued, among other things, that the recent decision of the Court of Appeal in SFO v ENRC changed, or clarified, the law in those cases where a document is brought into existence for two purposes, one of which was for use in litigation. However, the Judge (Teare J) did “not consider that the decision changed the law”. He disagreed with Sotheby’s suggestion that, following ENRC, whenever litigation is the ‘inevitable’ consequence of taking a particular commercial decision (here being whether the painting was fake), the dominant purpose of the documents produced for making that decision is necessarily their use in the contemplated litigation.

The Court confirmed it remains good law that unless litigation is at least the dominant purpose for which the relevant document was prepared, litigation privilege will not apply. Determining the “dominant purpose” is a question of fact in each case (and the facts of ENRC and of this case were not analogous).

The Court’s decision

The Court decided that the correspondence passing between Sotheby’s and each of the two experts took place for two purposes “of equal importance and relevance”: (1) deciding whether the painting was a fake and whether the sale should be rescinded; and (2) to ensure Sotheby’s position in any litigation was robust. Although use in contemplated litigation was a purpose of the correspondence, it was not the dominant purpose. Therefore, the correspondence was not protected by litigation privilege and inspection was ordered.

Comment

This case provides a helpful reminder that the burden of proof of establishing any claim to privilege is on the party asserting privilege. This may well be more complex or difficult in terms of an assertion of litigation privilege where a document is created for more than one purpose. As in this case, a mere assertion of privilege and a witness statement by a party’s lawyer setting out the ‘purpose’ of the communication over which privilege is claimed will not be determinative. The courts will assess the evidence in support of a claim for privilege with objective, “anxious scrutiny”.

This decision is particularly timely given the disclosure pilot scheme which launched in the Business and Property Courts on 1 January 2019 (which you can read about in more detail in our guide here). Among the changes being introduced under the pilot is an express duty on legal representatives to undertake a review to ensure any claim for privilege is properly made and its basis sufficiently explained.

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