Privilege, detailed assessments and private hearings

 

The case of Eurasian Natural Resources Corporation Limited v Dechert LLP [2014] EWHC 3389 (Ch) a decision of Mr Justice Roth is a useful illustration of how costs litigation sometimes throws up issues which have a significance far and beyond questions of time and rate.

Eurasian Natural Resources Corporation Limited (ENRC) was subject to a self reporting process by the Serious Fraud Office and latterly a full blown criminal investigation in respect of alleged fraud at some of its overseas operations. It retained the services initially of DLA Piper UK LLP and then Dechert LLP. In total Dechert billed ENRC over £16.3 million, some £11.7 million of which was invoiced in the period from 23rd July 2012 to 11th April 2013.

On 27th March 2013 ENRC terminated Dechert’s retainer and instructed other lawyers. Dissatisfied with the levels of fees charged, ENRC applied for a detailed assessment on a solicitor-own client basis under section 70 of the Solicitors Act 1974. In opposition to the application, Dechert served 220 pages of witness statements and 13 lever arch files of exhibits. The evidence purported to give a very full amount of the various practices at ENRC being investigated, identifying many individuals involved and describing the way they conducted themselves in response to Dechert’s investigations.

ENRC wanted the detailed assessment heard in private: Dechert in public. ENRC’s concern was that the SFO would attend any public hearing, doubtless with their notebooks, in order to listen with interest to the material being discussed.

At first instance Master Haworth directed that the detailed assessment would be heard in public, a conclusion that might be thought surprising, but, as the High Court judge noted he had not heard extensive argument on the law, including the extent to which by taking detailed assessment proceedings, legal professional privilege had been waived by ENRC.

The appeal was argued by no fewer than seven counsel, four of them in silk, which gives an indication of the importance attached to the appeal and gives rise to vulgar speculation as to what it cost.

The key issues then were whether the interests of justice required that a detailed assessment hearing which would ordinarily be held in public should be held in private, a determination which in turn depended on whether a private hearing was required to protect ENRC’s unwaived rights to legal professional privilege.

The appeal in the High Court accordingly considered to what extent privilege is waived by the detailed assessment process, and whether the fact that documents are discussed in open court means that any privilege which attaches to them is lost. Roth J started by summarising certain authorities of long standing:

38. It is well-established that although an application for detailed assessment of costs inter partes may necessarily entail some waiver of privilege, that waiver is (i) limited; (ii) temporary; and (iii) extends only to the opposing party and the judge. Those principles were clarified by the judgment of a very strong Court of Appeal (Lord Donaldson MR, Taylor and Woolf LJJ) in Goldman v Hesper [1988] 1 WLR 1238. The case concerned a party-and-party taxation pre-CPR, where the assessment proceedings themselves were heard in private. The issue was the extent to which the paying party on an assessment was entitled to see all the documents which the party claiming payment of costs lodged before the registrar conducting the assessment, which would of course include many documents otherwise covered by LPP.

39. In his judgment with which the other members of the court agreed, Taylor LJ referred to the requirements regarding the documents to be lodged with the court, then set out in RSC Ord 62, r 29(7) [of which the equivalent are now at CPR PD 47, para 13.12] and stated as follows, at 1244:

“It is therefore clear that there is now a statutory requirement on a claimant for costs to disclose privileged documents to the court. Normally, where privilege exists it applies to protect disclosure not only to the opposing party, but also to the court. So the rule clearly makes inroads into that general protection. It follows that once a party puts forward privileged documents as part of his case for costs some measure of their privilege is temporarily and pro hac vice relaxed. In most cases, as Hobhouse J. observed in Pamplin’s case [1985] 1 WLR 689, 695, no problem would arise on taxation about privilege. However, when the problem does arise the taxing officer has the duty of being fair to both parties: on the one hand, to maintain privilege so far as possible and not disclose the contents of a privileged document to the paying party unnecessarily; on the other hand, he has to see that that party is treated fairly and given a proper opportunity to raise a bona fide challenge. The contents of documents will almost always be irrelevant to considerations of taxation which are more concerned with time taken, the length of documents, the frequency of correspondence and other aspects reflecting on costs.… There may be instances in which a taxing officer may need to disclose part, if not all, of the contents of a privileged document in striking the appropriate balance. He will no doubt use all his expertise and tact in seeking to avoid that situation wherever he can. I do not envisage it occurring, except very rarely.”

40. Referring to the flexible approach which the taxing officer might take, such as restricting disclosure to the lawyers of the paying party, Taylor LJ continued:

“Any disclosure of privileged documents which does have to be made in the exercise of the taxing officer’s discretion would in my judgment be only for the purposes of the taxation. That it is possible to waive privilege for a specific purpose and in a specific context only is well illustrated by the decision of this court in British Coal Corporation v. Dennis Rye Ltd. (No. 2) [1988] 1 WLR 1113. In that case documents which had been created for the purpose of civil proceedings were disclosed to the police for the purposes of criminal investigation. The question arose as to whether the waiver of privilege in favour of the police amounted to a waiver in favour of the defendant for the purposes of the civil proceedings. Neill L.J., giving the first judgment, said, at p. 1121.”Nevertheless it is clear that the plaintiff made the documents available for a limited purpose only, namely to assist in the conduct first of a criminal investigation and then of a criminal trial. This action of the plaintiff, looked at objectively as it must be, cannot be construed as a waiver of any rights available to them in the present civil action for the purpose of which the privilege exists.”

By the same token voluntary waiver or disclosure by a taxing officer on a taxation would not in my view prevent the owner of the document from reasserting his privilege in any subsequent context.”

41. This principle was approved by the Court of Appeal in Bourns Inc v Raychen Corp [1999] 3 All ER 154, where a submission that the above passage was obiter was rejected. In that case, an American company that received documents by way of voluntary disclosure as part of the taxation of the costs of English patent proceedings argued that it should be free to use them in separate proceedings in the United States. Dismissing that contention, Aldous LJ (with whom Sir Stephen Brown P and Swinton Thomas LJ agreed) stated (at 162):

“It is possible to waive privilege for a specific purpose and in a specific context without waiving it for any other purpose or in any other context. Documents disclosed on taxation in the manner contemplated in Goldman are disclosed for the purposes of that taxation and, perhaps absent special circumstances, the privilege is only waived for the purpose for which the documents are disclosed. If Bourns had disclosed the documents after an order made by the taxing master under RSC, O. 62, r. 20(d), the reasoning of Taylor LJ in Goldman would have been decisive. The privilege attaching to the documents would only have been waived for the purpose of the taxation proceedings. Does the fact that no such order was made result in the privilege being waived generally? In my judgment the answer is ‘No’.”

42. After stating that it should make no difference that the documents had been disclosed voluntarily and not pursuant to an order, Aldous LJ continued:

“There is good reason to encourage voluntary disclosure of relevant documents in taxation proceedings. A party who claims payment may have to elect whether to pursue that claim in the light of knowledge that it might require disclosure of privileged documents. If he decides to pursue such a claim with the result that natural justice requires disclosure, he should not lose his right of confidentiality more than justice requires. Justice only requires that right to be lost for the taxation proceedings.”

43. Finally, B v Auckland District Law Society [2003] UKPC 38, [2003] 2 AC 736, concerned the question whether the applicable New Zealand statute entitled the respondent law society to require a law firm to produce privileged documents for the purpose of an inquiry into allegations of professional misconduct. The Judicial Committee of the Privy Council held that the statute did not override LPP. However, the firm had already provided some documents to the independent counsel appointed by the law society to conduct the investigation, and the question therefore arose whether LPP in those documents had thereby been lost. Under the heading, “Limited waiver”, Lord Millett, delivering the opinion of the Board, stated, at [68]:

“The society’s argument, put colloquially, is that privilege entitles one to refuse to let the cat out of the bag; once it is out of the bag, however, privilege cannot help to put it back. Their Lordships observe that this arises from the nature of the privilege; it has nothing to do with waiver. It does not follow that privilege is waived generally because a privileged document has been disclosed for a limited purpose only: see British Coal Corpn v Dennis Rye Ltd (No 2) [1988] 1 WLR 1113 and Bourns Inc v Raychem Corpn [1999] 3 All ER 154. The question is not whether privilege has been waived, but whether it has been lost. It would be unfortunate if it were. It must often be in the interests of the administration of justice that a partial or limited waiver of privilege should be made by a party who would not contemplate anything which might cause privilege to be lost, and it would be most undesirable if the law could not accommodate it.” After explaining that production of the documents did not deprive them of their privileged character, Lord Millett continued, at [71]:”A lawyer must be able to give his client an unqualified assurance that, not only that what passes between them shall never be revealed without his consent in any circumstances, but that should he consent to disclosure for a limited purpose those limits will be respected….”

Roth J then noted the following:

44. Mr Hollander submitted that all the cases dealing with limited waiver concerned the provision of privileged documents to a third party, where that provision was expressed to be for a limited purpose or, if it were not expressed – as in the case of inter partes taxation – that was recognised as a special circumstance. None of those cases concerned privileged documents that were already in the possession of the party prior to the waiver. In the latter circumstances, he argued, where a waiver of privilege was to be implied, it could not be limited but was complete.

However that was rejected by the court:

45. However, in my judgment there is no reason as a matter of principle, practicality or authority why the circumstances giving rise to a limited waiver should be restricted in the manner which Mr Hollander suggested. Although the leading cases concerning professional negligence actions against a solicitor speak of an implied waiver of privilege in general terms, in my view, that simply reflects the fact that in none of those cases was this question raised for consideration. In none of them was there any issue about holding the hearing in public. More significantly, the authorities which have directly considered limited waiver do not suggest that the concept has an inherently restricted application. The words of Lord Millett, speaking for the Privy Council in B v Auckland District Law Society, set out above, are of general scope (“It must often be in the interests of the administration of justice….”). Since it is established that a waiver of privilege may be express or implied, I consider that in appropriate circumstances an implied waiver can be limited in the same way as an express waiver.

He went onto conclude:

48. In the present case, it is common ground that there is an implied waiver of privilege so as to enable Dechert to resist the argument of special circumstances under sect 70(3) SA 1974, and then contest the challenge to its charges on a detailed assessment. However, I consider that there is no ground for finding that privilege was thereby waived completely and for any use of the documents that is wholly irrelevant to that assessment. For example, the affairs of ENRC, as a former public company, have attracted some media interest and I think that the implied waiver to which the sect 70 application gave rise could not possibly entitle Dechert to hand over all the documents concerning their former client to an inquiring journalist. Once the potential of an implied waiver being limited is recognised, this seems to me a classic case for its application.

The effect of finding there had been (at best) only a limited waiver of privilege for the purposes of the detailed assessment proceedings led inevitably to the appeal being allowed:

59. I have no doubt that the present case is one where the interests of justice require that the reading by the costs judge of the papers should not have the effect of putting them into the public domain. It is notable that Master Haworth made an order pursuant to CPR 5.4C(4) that a non-party may not obtain a copy of any of the documents on the court file: see para 1 of his judgment. That order would have been futile if by reason of his stating that he had read the papers they had thereby entered into the public domain. So also would Master Haworth’s grant of permission to appeal against his refusal to direct that the costs application be heard in private. The purpose of seeking a hearing in private was of course to prevent public access to the documents but, if Dechert’s submission were correct, the pass had been sold on that issue once Master Haworth heard in public the application to decide whether the subsequent hearing should be in private. ENRC’s right of appeal, which the costs judge granted, would be rendered nugatory.

As an interesting issue on the effect of a judge noting he had read the evidence:

60. Even if I were wrong in that conclusion, I consider that this court can still issue an order preventing further dissemination of the documents. Mr Hollander resisted that position, arguing that since the documents had “entered the public domain” they were effectively out in the open and could no longer be subject to restriction. I regard that submission as misconceived. When I put it to Mr Hollander that in that case once a judge entered court and said to the parties at the start of the hearing that he had read the papers, the documents were thereby in the public domain and could no longer be subject to restriction, he submitted that the court would retain power until the conclusion of the hearing to restrain dissemination. But I do not see any logical reason why a cut-off should come at that point, so as to deprive an appellate court from imposing a restriction if, for example, it considered that the judge below had wrongly decided this very point.

61. The power of the High Court with respect to injunctions is set out in sect 37(1) of the Senior Courts Act 1981. It may grant an injunction  “in all cases in which it appears to the court just and convenient to do so.”

62. If the court clearly did not intend by virtue of its statement that it had read the papers to place them in the public domain, or even if it did so and an appellate court held that it had been mistaken in its approach, I see no reason in principle why the court then lacks jurisdiction to make an order against disclosure or dissemination of the material in question, provided always that it is ‘just and convenient to do so’. Clearly, if there had already been widespread dissemination of the material, such an order would be inappropriate. But in a case like the present where no third party attended the hearing and there is no suggestion that any third party has yet obtained access to this material, if the interests of justice required that no disclosure or dissemination should be made, I consider that the court retains the power to make an order accordingly.

The result of the appeal was no longer in doubt:

66. Here, ENRC has a very real concern that a public hearing will expose much of the material to the SFO and thereby prejudice its position. Part of the retainer of Dechert in this case was to assist ENRC in the fraud investigation and its dealings with the SFO, and so some of the privileged documents were created for that very purpose. I consider that there is the potential for very real prejudice to ENRC if the matter were heard in public. That is illustrated by the declared position of ENRC that if the order below stands, it will not proceed with its application. The effective protection of ENRC’s rights therefore requires that the matter be heard in private.

67. By contrast, what legitimate interest has Dechert that the application should be heard in public? This is addressed in a brief witness statement from Mr Richard Harrison, who is not himself a solicitor at Dechert but at its external solicitors instructed for the purpose of this action. Mr Harrison exhibits a bundle of press articles which he says include reports that ENRC is “suing Dechert for overcharging millions of pounds”. Mr Harrison continues:

“These proceedings, and the complaints being made by the Claimant about Dechert in relation to its fees, are accordingly so well documented in the press that it is vital that Dechert has the ability to clear its name of the allegations of gross and deliberate overcharging in a public court and that it is not dealt with by evidence and a judgment which are kept in private. Therefore, it is important to Dechert that these proceedings be heard in public.”

68. I have read the exhibited articles, which mostly concern allegations about ENRC in a letter from Dechert to ENRC that was mysteriously leaked to the press. They do also report complaints by ENRC about Dechert’s “improper billing”, although I note that only one of the 11 articles exhibited includes the specific allegations to which Mr Harrison refers. Nonetheless, I recognise Dechert’s understandable concern to vindicate its reputation. But I consider that this concern will be entirely met by a public judgment determining the costs application. There is no question of this court directing that the costs judgment itself should be kept private, as Mr Harrison infers. I can see no need for the hearing itself to be in public, which is the issue on this appeal, in order adequately to protect Dechert’s interests. Indeed, I would have thought that a public hearing might have a contrary effect since all the allegations advanced by ENRC regarding its overcharging would then be rehearsed before a public audience.

69. Finally, it is not suggested that there is some particular public interest on the facts of this case for holding the hearing in public. I also consider it of some relevance that this is not adversarial litigation but the exercise of a supervisory jurisdiction by the court over its officers.

This judgment is perhaps unsurprising in its result: it will be of use to all who have to consider and deal with material disclosed on detailed assessments and who must consider carefully, what is to be regarded as in the public domain, and what is to be  regarded as falling back into the locked box marked legal privilege after the detailed assessment is over.

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