Litigation privilege: High Court finds privilege applies to valuation report prepared for potential company sale

The High Court has upheld a claim to litigation privilege over a valuation report prepared for the potential sale of company's trading subsidiaries to a shareholder of the company, in circumstances where that sale was motivated by the potential withdrawal of banking facilities to the company resulting from a dispute between two shareholders: Krishna Holdco Ltd v Gowrie Holdings Ltd [2025] EWHC 341 (Ch).

For litigation privilege to apply, a document must have been prepared for the dominant purpose of seeking legal advice or information/evidence to conduct litigation. In this case, the court rejected as "too narrow" the argument that the exploration of a sale could not properly be described as conducting litigation, whether or not that sale was motivated by litigation.

The decision suggests that, in determining the question of purpose, the court must look beyond the immediate transaction for which a document was prepared (in this case the potential sale) and ask why that transaction was happening. Here, the court was satisfied that the potential sale did not arise in the course of ordinary commercial negotiations, but as a response to a strategic threat that was part of the wider dispute being litigated between the parties. The dominant purpose test was therefore satisfied.

In the judge's view, that approach was consistent with recent authority on the question of determining purpose, including SFO v ENRC [2018] EWCA Civ 2006 (considered here). In essence, the authorities show that what appears to be a separate purpose may in fact be a subset of an overarching litigation purpose. The judge considered that the same logic applied in this case, as the sale was in reality a subset of a broader defence strategy.

Background

The underlying case is an unfair prejudice petition in which the petitioner, Krishna, obtained a judgment on liability which required the respondent, GHL, to buy its shares in their jointly owned company, LBNS, with an agreed valuation date of 25 June 2019.

In advance of the trial on quantum, GHL disclosed a signed board minute of LBNS from March 2019. The minute recorded resolutions authorising a sale of two of LBNS's trading subsidiaries on the basis of an offer by GHL “based upon full value (and supported by independent valuations from PricewaterhouseCoopers) which is not discounted to reflect the desperate situation [LBNS and its subsidiaries] have been placed in".

The "desperate situation" referred to was the risk that LBNS's banking facilities might imminently be withdrawn due to the dispute between GHL and Krishna and, more specifically, Krishna's refusal to provide certain "Know Your Client" information to the bank. The minute reflects the idea that this problem might be solved by GHL buying the subsidiaries, so that they could continue to trade despite a withdrawal of LBNS’s banking facilities.

GHL initially asserted that the board minute itself (which was signed but never used as the issue with the bank was resolved) was privileged, but ultimately accepted that, even if that was originally the case, any privilege in it had been waived. However, it continued to assert privilege in the PwC report, both an initial draft which it said was protected by litigation privilege and a later final version which it said was protected by both litigation privilege and "without prejudice" privilege since it was prepared for a mediation that took place in April 2019.

Krishna contested the claim for litigation privilege, arguing that: (i) the exploration of a sale of the subsidiaries to GHL could not be conducting litigation, even if the motivation was anticipated litigation; and (ii) any privilege would belong to LBNS, not GHL, and LBNS had not put forward a claim to privilege. They also resisted the claim for without prejudice privilege, arguing that the PwC report's deployment in a later mediation did not convert it into a privileged document if it was not privileged to begin with.

Decision

The High Court (Adam Johnson J) upheld GHL's claim for privilege in the PwC report.

Dominant purpose

The judge said that, in determining the question of purpose, the court needed to look beyond the form of the transaction proposed and ask why it was intended to happen, and therefore why PwC's valuation work was carried out. This was consistent with SFO v ENRC, referred to above, in which Sir Geoffrey Vos (then Chancellor) endorsed the view expressed in Re Highgrade Traders [1984] BCLC 151 that, “the exercise of determining dominant purpose in each case is a determination of fact,” and that, “the court must take a realistic and, indeed, commercial view of the facts.”

By January 2019 the parties were engaged in litigation. Against that background, the board minute and initial draft of PwC’s report were prepared as part of a strategy to sell LBNS's subsidiaries as a possible response to the threat of its banking facilities being withdrawn. The judge accepted GHL’s submission that the potential withdrawal of banking facilities and the response to that threat, namely the prospective sale of the subsidiaries to GHL, were "all part of the ongoing and developing set of hostilities which had begun to separate the parties". PwC's work was undertaken for the dominant purpose of responding in a practical way to one of the key issues forming part of those hostilities – without which there would have been no proposed sale and therefore no valuation.

The final version of the PwC report was prepared for the dominant purpose of a subsequent mediation, to try to bring those hostilities to an end, and therefore was covered by litigation privilege. It was only disclosed subject to an express agreement that it was provided on a without prejudice basis.

It was also relevant that GHL’s solicitors and both leading and junior counsel had considered the PwC report and surrounding materials and concluded that they were privileged, based on a fuller picture than either Krishna or the court had available. The judge stated:

"The exercise of disclosure is essentially one for the parties, although subject to the Court’s supervision. The Court to some extent has to trust the parties’ representatives who are professional persons subject to their own regulatory controls and whose duties include assisting the Court."

The judge concluded that he should not go behind the assessments made by both solicitors and counsel after their careful review. However, GHL's solicitors had offered to provide an affidavit confirming the factual basis for the claim to privilege, and for the sake of good order they should do so.

Whose privilege?

The judge concluded that GHL was entitled to assert privilege over the PwC report. Although PwC was instructed by LBNS, it was at the joint direction of LBNS and  was addressed to and paid for by LNBS and Samit Hathi, a prominent member of the family that owned GHL.

The authorities emphasise that, in determining dominant purpose, it is the position of the person who instigated its creation that will normally be relevant. That is because the rationale for litigation privilege is to enable each party to prepare its case without the risk of its opponent obtaining the material generated as a result.

In this case, looking at the substance of the matter, Samit Hathi and GHL were the ones in the fight with Krishna, not LBNS, and it was their interests that fell to be protected. As the judge put it "LBNS was what the fight was about, but the protagonists were the shareholders and those controlling the shareholders".