Court of Appeal rejects claim to without prejudice or litigation privilege in communications incorporated into settlement agreement

The Court of Appeal has held that the claimant was not entitled to withhold from inspection communications that had been incorporated into a settlement agreement with one of five defendants. That was despite the fact that, at the time they were made, those communications had been protected by the without prejudice rule, and potentially also litigation privilege (on the basis that the claimant's dominant purpose in conducting those communications was to collect evidence against the other defendants): BGC Brokers LP v Tradition (UK) Ltd [2019] EWCA Civ 1937.

The decision is unsurprising in finding that communications incorporated into a settlement agreement thereby lost their without prejudice status. It has long been established that, where a settlement agreement is concluded by the acceptance of a without prejudice offer, the offer ceases to be protected by the without prejudice rule since it forms part of the contract. It seems logical that the same should be true of without prejudice communications incorporated into a settlement agreement.

It is also unsurprising that any litigation privilege in those communications should have been lost as a result of their being incorporated into the settlement agreement. The Court of Appeal's reasoning on this issue may, however, be seen as more novel. The court accepts that the dominant purpose of the original communications may have been to collect evidence, but says that was not the purpose of incorporating them into the settlement agreement, and therefore litigation privilege does not apply. Ordinarily, though, the rule is "once privileged, always privileged" unless privilege is waived or confidentiality is lost - at least insofar as legal advice privilege is concerned (see this post). The present decision may suggest that the same is not true for litigation privilege. As a practical matter, therefore, parties should exercise caution in using material that is subject to litigation privilege for any purpose apart from its original litigation purpose.

Background

The claimant, BCG, brought proceedings against various defendants including Mr Cuddihy, its former employee, in relation to the provision of BCG's confidential information to a competitor.

After proceedings were issued and served, Mr Cuddihy attended interviews with BGC's solicitors which were expressly conducted on a "without prejudice and confidential" basis. Mr Cuddihy's solicitors also sent three emails to BGC's solicitors, again on a "without prejudice and confidential" basis.

Shortly afterward, BGC and Mr Cuddihy entered into a settlement agreement. This included a warranty and representation from Mr Cuddihy that he had provided full and frank disclosure of his supply of BGC's confidential information, including by way of the interviews and emails referred to above. Notes of the interviews and copies of two of the emails were at schedules 4 and 5 to the settlement agreement. The third email was referred to in the agreement but not scheduled to it. The agreement stated:

"For the avoidance of doubt, the [notes and emails] which are without prejudice... will retain without prejudice privilege save that BGC and/or Mr Cuddihy will be able to waive the without prejudice privilege at its sole discretion in order to protect its position in the event that BGC considers or asserts that Mr Cuddihy has breached a term of this Agreement."

The settlement agreement was disclosed to the other defendants to the action, but with schedules 4 and 5 redacted. Those defendants applied to the court seeking inspection of an unredacted copy of the agreement. BGC resisted inspection on the grounds of without prejudice privilege, alternatively litigation privilege.

Master Davison rejected both claims to privilege and ordered inspection of the unredacted settlement agreement and the third email, and Moulder J dismissed BGC's appeal. BGC appealed to the Court of Appeal.

Decision

The Court of Appeal dismissed the appeal (Arnold LJ giving the lead judgment, with which Lewison and Richards LJJ agreed).

The court noted that the application was for inspection of an unredacted copy of the Settlement Agreement, not the notes and emails (referred to in the judgment as the "Antecedent Communications") themselves. Accordingly, the question was not whether the Antecedent Communications were protected by without prejudice privilege and/or litigation privilege, but whether the relevant parts of the Settlement Agreement were so protected.

Without prejudice

Although there was no dispute that the Antecedent Communications were protected from inspection by without prejudice privilege at the time they were made, the court rejected BCG's argument that they had not lost that status by being included (or, in the case of the third email, referred to) in the settlement agreement. That, it said, focused on the wrong communications: the fact that the Antecedent Communications were protected did not mean that the relevant parts of the settlement agreement were protected, since they were distinct communications.

The purpose of the settlement agreement was not to negotiate, but to conclude a settlement of the dispute between BGC and Mr Cuddihy. It was therefore not covered by without prejudice privilege. Because the third email had become incorporated into the settlement agreement, it also ceased to be protected by without prejudice privilege; otherwise it would not be possible (for example) for BGC to sue Mr Cuddihy for breach of warranty relating to the contents of that email.

Litigation privilege

The Master rejected BGC's claim to litigation privilege on two grounds: first, that the settlement agreement was a communication between opposing parties; secondly, that the dominant purpose of incorporating the Antecedent Communications into the settlement agreement was to "benchmark or police" the agreement, and not to enable BGC to gather evidence for the litigation. The Judge upheld the Master's decision on the first ground, and therefore did not need to consider the second ground. The Court of Appeal considered the second ground (which was relied on by respondent's notice) first, commenting that it provided an easier answer to BGC's claim than the first ground.

The court was prepared to accept that BGC's dominant purpose in engaging in the Antecedent Communications was to gather evidence for use against the other defendants in the proceedings. However, the purpose for which it incorporated the Antecedent Communications into the settlement agreement was in order to obtain the benefit of the representations and warranties from Mr Cuddihy and hence the ability to sue Mr Cuddihy if those representations and warranties were inaccurate. Given that purpose, it did not make any difference whether the Antecedent Communications were reproduced in the settlement agreement or incorporated by reference. There was no litigation privilege.

As for the first ground, the Court of Appeal noted that it is well established that no litigation privilege attaches to communications between opposing parties to litigation. BGC submitted that this principle was confined to two-party cases, and that in three-party cases litigation privilege could attach to communications between two opposing parties which protected those communications from inspection by the third party. The respondents disputed that litigation privilege was available in three-party cases unless the relevant parties shared a common interest as against the third party. The court said that since these issues were not straightforward, it was better to leave them for decision in a case where their resolution mattered.