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21 January 2014
In Starbev GP Ltd v Interbrew Central European Holding BV(1) claimant Starbev GP Ltd successfully challenged the claim of defendant Interbrew Central European Holding (ICEH) BV to withhold inspection of two categories of document on the grounds of litigation privilege. The case is a useful articulation of the relevant principles governing litigation privilege and a helpful reminder of how difficult it is to protect pre-litigation fact-finding exercises from being disclosed during the course of litigation.
Starbev acquired ICEH's European brewing business in December 2009. As part of the acquisition, the parties entered into a contingent value right (CVR) agreement, which gave ICEH the right to receive deferred consideration on any subsequent sale of the business.
ICEH's entitlement arose if the cash proceeds of any such subsequent sale exceeded certain thresholds, which were linked to the value of the defined term 'investment amount' in the CVR agreement. Essentially, the higher the investment amount figure, the less deferred consideration ICEH would be entitled to under the CVR agreement.
In April 2012 Starbev entered into an agreement to resell the business. The consideration for the sale included both a cash payment and a non-transferable note redeemable after December 2012, deferring part of the payment. ICEH alleged that structuring the deal in this way had the effect of reducing its entitlement under the CVR agreement. The extent to which ICEH was entitled to a share of the proceeds from the subsequent sale formed the basis of the litigation between the parties.
At issue at the hearing held on December 12 2013 was whether ICEH could withhold inspection of two categories of document on the grounds of litigation privilege. These categories were:
The court summarised the legal requirements necessary to establish litigation privilege as follows:
The court also noted that it is necessary to subject evidence in support of a claim for privilege to "anxious scrutiny", in particular because of the difficulties in going behind that evidence, as recently articulated in Tchenguiz.(2) In practical terms, this would involve reviewing the contemporaneous documents in order to reach an objective assessment of the communicator's subjective intent.
In respect of the Barclays documents, the evidence submitted by the individual at ICEH who had sought the advice from Barclays, Mr Golden, was that having been notified on April 3 2012 that the consideration for the subsequent sale included the note, he had been "immediately suspicious". When Golden was subsequently informed that the investment amount advanced by Starbev was significantly larger than he had anticipated, it seemed to him that Starbev had deliberately structured the sale of the business in order to 'game' the CVR agreement and eliminate any payment that would have been due to ICEH.
Golden's evidence was that at this point, he thought that ICEH would end up in a dispute with Starbev and, as a result, he sought advice from Barclays as to what steps were available to challenge the structuring of the subsequent sale. On this basis, ICEH submitted that at this point, litigation was reasonably anticipated and the dominant purpose of instructing Barclays was in connection with that anticipated litigation; therefore, litigation privilege should apply.
The court held that litigation privilege did not extend to the Barclays documents. In reaching its conclusion, the court was mindful of the contemporaneous documentation which suggested that the purpose of the communications with Barclays had been to check the position and calculate the payment that might be likely to come to ICEH as a result of the subsequent sale. The court also considered that Golden's statement – "it occurred to me that ICEH would end up in… dispute with Starbev" – suggested that such a dispute was no more than a possibility, as opposed to there being a reasonable anticipation that there would be a dispute which would result in litigation.
In the court's view, the overall effect of Golden's evidence was that he had a suspicion concerning the sale of the business by Starbev and instructed Barclays to investigate in order to see whether there was substance to his suspicion. That was insufficient to establish that litigation was reasonably contemplated or anticipated. Unless and until Barclays confirmed that there was substance to Golden's suspicion, there was no real reason to anticipate litigation.
The evidence submitted by the individual at ICEH who was involved in the appointment of KPMG and subsequently instructed KPMG to prepare a written report, Mr Caton, was that KPMG was originally appointed in early July 2012 primarily in order to conduct an audit of the various notices that Starbev had sent ICEH under the terms of the CVR agreement.
However, during a call which took place on July 20 2012, Caton submitted that it became clear that ICEH was likely to dispute Starbev's quantification of the investment amount and he anticipated that matters might well end up in litigation. Following the call, KPMG was instructed to prepare a written report of its conclusions and the arguments that might be available to ICEH to challenge Starbev's analysis. ICEH submitted that the dominant purpose of this instruction related to the prospective litigation and therefore litigation privilege should apply.
The court held that litigation privilege did not extend to the KPMG documents. Critical to the court's analysis were the contemporaneous documents that had been adduced. In particular, in an email dated July 20 2012 – the day of the KPMG call – Caton stated: "As part of our normal process with projects such as these, we'd like a written summary that outlines the work you've done the past couple weeks with respect to the… CVR." In the court's view, this email contradicted the assertion for litigation privilege on the basis that:
The court also noted that these points had not been addressed by ICEH in its evidence.
The court was also of the view that ICEH's position was undermined by its retainer letter with KPMG dated July 4 2012. The letter made reference only to the audit work that KPMG had been initially instructed to perform and stated that any developments in the scope of the work would be recorded in writing. The court also noted that there was no record of the KPMG retainer being changed or extended, despite the fact that on ICEH's evidence, as of July 20 2012 KPMG had been asked to fulfil a very different role. Again, this point had not been addressed in ICEH's evidence.
The court considered as inherently implausible Caton's position that at the date of the retainer on July 4 2012 litigation was not reasonably anticipated, when only two weeks later it had become the dominant purpose for instructing KPMG, thereby displacing the original purpose set out in the retainer letter.
Finally, the court made reference to the fact that if ICEH's assertion that litigation was reasonably anticipated as of July 20 2012 were correct, ICEH's solicitors would have been duty bound to advise ICEH at that date of the need to preserve disclosable documents under Civil Procedure Rules Practice Direction 31B, Paragraph 7. However, this advice had been given to ICEH only on October 5 2012 by its group legal director, although this individual explained that it was his practice to give such instruction only where litigation is more likely than not.
It is clear from this case that the courts will carefully scrutinise any witness statements filed in support of a party's position that a particular document or class of documents is privileged, and will cross-reference any such statement with the contemporaneous material available.
In particular, this case shows how difficult it can be to prove the dominant purpose of a particular communication. Given this difficulty, it is advisable to make clear in any document or communication on which litigation privilege is sought that it is both confidential and created for the purpose of litigation. It is also advisable to draft (or update) retainer letters to professional advisers to state explicitly that the advice sought is for the purpose of litigation.
Even with these precautions, the practical reality is that most investigations will be carried out with another purpose than litigation, not least to find out what went wrong. In these circumstances it will be difficult to rely on litigation privilege by claiming that the dominant purpose was litigation. Parties should therefore always proceed on the basis that there is a significant risk that any documents that they create will not carry litigation privilege.
In appropriate situations, a solution to the difficulties of asserting litigation privilege over pre-litigation investigation documents may be to appoint lawyers to lead any such investigations. By doing so – that is, by having lawyers conduct any interviews and draft any written reports – the party may be able to rely on legal advice privilege.
For further information on this topic please contact Andy McGregor or Chris Whitehouse at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1)  EWHC 4038 (Comm).
(2) Tchenguiz v Serious Fraud Office  EWHC 2297 (QB).
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