Westminster International BV & Ors v Dornoch Ltd & Ors

Litigation privilege protects communications with a third party made for the dominant purpose of obtaining legal advice about, or conducting, litigation reasonably in prospect. Litigation must be a real prospect, although its likelihood need not exceed 50 per cent.

The party asserting privilege bears the burden of proof. Direct evidence from the person responsible for creating the documents is desirable but not invariably essential. The court must assess all the evidence, and neither retaining solicitors nor asserting a particular state of mind is conclusive.

An insurer's investigation may be inseparable from obtaining legal advice about resisting a claim. Pleading that the insurer required a reasonable opportunity to investigate does not itself waive privilege in confidential communications with an investigating expert.

The appellants owned and operated a vessel insured by the respondent underwriters. Following a collision, the appellants' surveyors estimated repair costs sufficient to make the vessel a constructive total loss. The underwriters retained solicitors, rejected a notice of abandonment and instructed Noble Denton to investigate the repair estimate. Noble Denton's substantially lower estimate supported rejection of the constructive-total-loss claim.

The underwriters later accepted that the vessel was a constructive total loss and paid the outstanding insurance money. The appellants nevertheless claimed damages for delayed payment, including interest under section 35A of the Supreme Court Act 1981.

Cooke J dismissed an application for disclosure of documents generated by Noble Denton and other documents over which the underwriters claimed litigation privilege. The appellants contended that litigation had not been reasonably in prospect when the documents were created and, alternatively, that the underwriters had impliedly waived privilege by pleading that they required a reasonable opportunity to investigate the casualty.

1. Appeal dismissed. Etherton LJ, with whom Wilson and Sullivan LJJ agreed, held that the underwriters had established litigation privilege. Communications involving a solicitor or client and a third party are protected where their dominant purpose is obtaining legal advice in connection with, or conducting, litigation reasonably in prospect. A mere possibility is insufficient, but the probability of litigation need not exceed 50 per cent: Re Highgrade Traders Ltd [1984] BCLC 151 and United States of America v Philip Morris Inc [2004] EWCA Civ 330 applied.

2. Litigation was reasonably in prospect when the underwriters retained solicitors on 27 March 2007. The claim was exceptionally large, the appellants had asserted a constructive total loss, and the underwriters had serious concerns about the reliability of the supporting repair estimate. It was as likely as not that the further investigation would produce a lower estimate, in which event there would be a real prospect of litigation. In any event, the privilege requirements were plainly satisfied when Noble Denton produced substantially lower figures in May 2007.

3. The investigation was not an independent exercise in quantifying loss. Its purpose was inseparable from enabling legal advice to be given about liability and assembling evidence for anticipated litigation. The reasoning in Re Highgrade Traders Ltd and Hellenic Mutual War Risks Association (Bermuda) Ltd v Harrison (The “Sagheera”) [1997] 1 Lloyd's Rep 160 supported that conclusion.

4. The underwriters' evidence was imperfect because it did not come directly from the representative whose state of mind was relevant and did not identify the source of the solicitor's belief. That deficiency did not require rejection of the privilege claim. Direct evidence may be important, and its absence may make the burden difficult or impossible to discharge, but every case must be decided on the evidence as a whole. The burden remains on the party asserting privilege. Neither retaining solicitors nor evidence asserting the insurer's state of mind is necessarily sufficient.

5. The underwriters had not impliedly waived privilege by pleading that they required a reasonable opportunity to investigate. The principle concerning a client's waiver when suing a former solicitor did not apply. The pleaded matters concerned dealings between the parties or their agents and did not waive confidentiality in communications with Noble Denton. The court left open whether that principle could ever extend to litigation privilege involving third-party communications.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court affirmed the refusal of specific disclosure because the disputed documents were protected by litigation privilege.
2. Commercial Court: Cooke J dismissed the appellants' application for specific disclosure on 30 April 2009, holding that the underwriters were entitled to litigation privilege.