QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
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(1) KYLA SHIPPING CO LTD (2) VEGA CARRIERS LTD |
Claimant |
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- and - |
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(1) FREIGHT TRADING LTD (2) C TRANSPORT PANAMAX LTD (3) C TRANSPORT MARITIME S.A.M (4) LUIGI CAFIERO |
Defendant |
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Adam Turner (instructed by Watson Farley & Williams) for the Claimants
Hearing date: 10 February 2022
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Crown Copyright ©
Charles Hollander QC :
a. challenge the Claimants' claim for litigation privilege and
b. contend that there has been a waiver of privilege which entitles them to disclosure of additional materials referred to in a witness statement.
"You will not need reminding that YPA's Principals have provided you personally with great support and consistent assistance over the years, starting from your very first steps as a young man in the shipping industry. Further still, when you/Vega Carriers Limited ran up huge debts on the freight forwarding agreements entered into in 2008, we procured that our affiliated entities showed great flexibility and patience in circumstances where they could have simply demanded payment and accelerated enforcement against you/Vega Carriers Limited.
The resolution of the Kyla Shipping position therefore represents much more than simply the proper distribution/return of assets and interests belonging to YPA Associates. The considerable assistance provided to you personally over the years makes proper resolution of the Kyla Shipping position a question of integrity and trust."
"FTL
Given our relation and trust, full authority was granted to your affiliated company to act on our behalf. From this venture losses amount to excess of $31 million, which were paid in full. As you very well know, the industry was settling unsecured FFA outstandings at a discount, but FTL elected to settle at par value, without giving us the option to negotiate a discount. Relevant documents were repeatedly requested, but were never disclosed. This case indicates without doubt a great level of mismanagement and abuse of the powers previously granted to you, as well as complete failure to safeguard our interests; thus now the entirety of transactions executed by FTL on our behalf is questioned."
164. By late 2018, the correspondence concerning a distribution to the minority shareholder had become highly antagonistic (and the situation has since then escalated, with YPA bringing proceedings in Norway to seek to force disclosures by Gard). I am limited in the reference I can make to this correspondence, because some of it was sent on a "without prejudice" basis. I can say, however, that NEL was upset by the tone of the correspondence, particularly given the family connections involved. The historical situation with the FFAs had some relevance to this reaction. NEL had paid the full $31 million FFA exposure from his own pocket, despite the more modest assets which existed within Kyla, and despite the fact that, in late 2008, the industry as a whole had been settling unsecured FFA undertakings at a discount, whereas CTM/FTL had never obtained any discount on Kyla's liabilities. On 15 November 2018 NEL wrote a letter to PGL in which he raised this grievance about the absence of any discount on FFA Settlements.
165. At about this time, having appointed a new firm of accountants to perform an analysis of Kyla's historical transactions, NEL decided it was appropriate to appoint an expert to audit the FFAs. This would allow him to make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence with YPA/PGL. In late 2018 an expert was appointed, and as part of the process, data on market rates from the relevant dates in 2007 and 2008 was obtained from SSY, in the form of the daily reports of estimated course-of-business prices on the relevant dates. This historic information is not publicly available or readily accessible.
166. The initial data set was obtained from only one broker, and therefore required caution to be exercised as to its reliability. It did, however, raise real questions about the Contract Rates in the FFAs. In early 2019, therefore, expert evidence was obtained on the pattern of trading conducted on behalf of Kyla, and particularly on the question of whether the apparent discrepancies between the Contract rates achieved and the historic market data was indicative of fraud. This led to further data being sought, particularly in the form of the daily BFA reports from the relevant dates, which, being an average of figures from the leading brokerages, were expected to be more reliable than the SSY figures. Once the BFA data was received, it was the subject of further expert evidence, and the bottom line of this analysis was a heightening of the concern raised by the original data. This analysis, and a parallel review by WFW and counsel, resulted in the summary of pricing deviations and suspicious trading patterns which is now set out in the draft Particulars of Claim. For NEL, the revelation that the FFAs were, or may have been, deliberately mispriced, has come out of nowhere. Self-evidently, he would not have funded the FFA losses out of his own pocket (ie without appealing to the limited liability of Kyla) if he had harboured any suspicion that the contracts had been arranged in an untoward manner.
"This would allow him to make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence with YPA/PGL"
"The quoted text is true, if somewhat colloquial, but it must be kept in mind that the relevant correspondence with YPA was correspondence in which YPA was expressly threatening to sue (see above) and the preparation of a counterclaim is an effective way to "provide ballast" when responding to such correspondence."
Litigation privilege
"11. The legal requirements of a claim to litigation privilege may be summarised as follows:
(1) The burden of proof is on the party claiming privilege to establish it see, for example, West London Pipeline and Storage v Total UK [2008] 2 CLC 258 at [50].
(2) An assertion of privilege and a statement of the purpose of the communication over which privilege is claimed in a witness statement are not determinative and are evidence of a fact which may require to be independently proved. The court will scrutinise carefully how the claim to privilege is made out and the witness statements should be as specific as possible see, for example, Sumitomo Corporation v Credit Lyonnais Rouse Ltd (14 February 2001) at [30] and [39] (Andrew Smith J); West London Pipeline and Storage Ltd v Total UK Ltd [2008] EWHC 1729 (Comm) at [52], [53], [86] (Beatson J); Tchenguiz v Director of the SFO [2013] EWHC 2297 (QB) at [52] (Eder J).
(3) The party claiming privilege must establish that litigation was reasonably contemplated or anticipated. It is not sufficient to show that there is a mere possibility of litigation, or that there was a distinct possibility that someone might at some stage bring proceedings, or a general apprehension of future litigation see, for example, United States of America v Philip Morris Inc [2004] EWCA Civ 330 at [68]; Westminster International v Dornoch Ltd [2009] EWCA Civ 1323 at paras [19] [20]. As Eder J stated in Tchenguiz at [48(iii)]: "Where litigation has not been commenced at the time of the communication, it has to be 'reasonably in prospect'; this does not require the prospect of litigation to be greater than 50% but it must be more than a mere possibility".
(4) It is not enough for a party to show that proceedings were reasonably anticipated or in contemplation; the party must also show that the relevant communications were for the dominant purpose of either (i) enabling legal advice to be sought or given, and/or (ii) seeking or obtaining evidence or information to be used in or in connection with such anticipated or contemplated proceedings. Where communications may have taken place for a number of purposes, it is incumbent on the party claiming privilege to establish that the dominant purpose was litigation. If there is another purpose, this test will not be satisfied: Price Waterhouse (a firm) v BCCI Holdings (Luxembourg) SA [1992] BCLC 583, 589590 (cited in Tchenguiz at [54]-[55]); West London Pipeline and Storage Ltd v Total UK Ltd at [52].
12. In relation to the Court's approach to the assessment of evidence in support of a claim for privilege, it has been stated that it is necessary to subject the evidence "to "anxious scrutiny" in particular because of the difficulties in going behind that evidence" per Eder J in Tchenguiz at [52]. "The Court will look at 'purpose' from an objective standpoint, looking at all relevant evidence including evidence of subjective purpose" ibid. 48(iv). Further, as Beatson J pointed out in the West London Pipeline case at [53], it is desirable that the party claiming such privilege "should refer to such contemporary material as it is possible to do without making disclosure of the very matters that the claim for privilege is designed to protect".
"19. I consider the effect of [Mr Golden's] evidence to be that he had a suspicion concerning the sale of the Business by Starbev and instructed Barclays to investigate in order to see if there was substance to his suspicion. Barclays' role was investigatory. Unless and until they confirmed that there was substance to Mr Golden's suspicion there was no real reason to anticipate litigation."
20. This is borne out by his statement that "it occurred to me that ICEH would end up in another dispute with Starbev". This suggests no more than that such a dispute was a possibility. It does not connote that it was reasonably anticipated both that there would be such a dispute and that it would result in litigation. Whether or not it would do so was unlikely to be known until Barclays investigated and reported.
21. That Barclays' role was investigatory is borne out by a number of contemporaneous documents which refer to their role as one of checking the position and calculating the payment that might be likely to come to ICEH as a result of the sale."
"Thus, affidavits claiming privilege whether sworn by the legal advisers to the party claiming privilege as is often the case, or, as in this case, by a Director of the party, should be specific enough to show something of the deponent's analysis of the documents or, in the case of a claim to litigation privilege, the purpose for which they were created. It is desirable that they should refer to such contemporary material as it is possible to do so without making disclosure of the very matters that the claim for privilege is designed to protect."[6]
"An affidavit which sets out a claim for privilege by stating the alleged purpose of the communication is not conclusive where it is appears from other evidence that the characterisation of the documentation is misconceived. The court must consider the issue in the light of all the evidence including, but not limited to any statement of purpose."
"A claim for privilege is an unusual claim in the sense that the legal advisers to the party claiming privilege are, subject to one point[9] the judges in their own client's cause. The court must therefore be particularly careful to consider how the claim for privilege is made out."
"The requirement that litigation be "reasonably in prospect" is not in my view satisfied unless the party seeking to claim privilege can show that he was aware of circumstances which render litigation between himself and a particular person or class of persons a real likelihood rather than a mere possibility."
"The dividing line between circumstances which afford a reasonable prospect of litigation (but not necessarily that litigation is more probable than not), on the one hand, and a (mere) possibility of litigation on the other, is not entirely clear. The fact that one or more conditions have to be fulfilled in order for a dispute to arise which requires the commencement of litigation in order to resolve it does not necessarily mean that litigation is only a possibility. Much may depend on what, at the relevant time, is the prospect that the conditions will be fulfilled."
Litigation privilege: submissions
Litigation privilege: discussion
a. There is no suggestion in the correspondence that proceedings or a counterclaim in proceedings is envisaged in relation to the "mismanagement" claim.
b. The parties to any such litigation would have not been the shareholders of Kyla, so the dispute is with different parties
c. The references in Mr Buss' first witness statement to the purpose of the instruction being for "ballast in the correspondence" are difficult to square with a claim for litigation privilege.
d. All in all, so far as one can judge from the relatively limited explanation provided, the instruction of an expert appears to have been for the purpose of trying to provide backing for the mismanagement claim, albeit that the parties to such a claim would have been different, but it does not seem to have reached a stage where it was possible to say that litigation in relation to the mismanagement claim was in reasonable prospect
Litigation privilege: disposal
Waiver of privilege
" in our view, the answer to the question whether waiver has occurred or not depends upon considering together both what has been disclosed, and the circumstances in which disclosure has occurred. As to the latter, the authorities in England strongly support the view that a degree of reliance is required before waiver arises, but there may be issues as to the extent of the reliance. Ultimately, there is the single composite question of whether, having regard to these considerations, fairness requires that the full advice be made available. A court might, for example, find it difficult to say what side of the contents/effect line a particular disclosure falls, but the answer to whether there has been waiver may be easier to discern if the focus is on the question whether fairness requires full disclosure."
"That distinction reflects a policy not to hold that there has been a waiver without good reason and to confine cases of waiver to cases where the party said to have waived is relying on the content of the legal advice for some purpose. Sometimes the distinction is drawn between reference to legal advice and deployment of it. The overriding principle is one of fairness, that if the content of legal advice is deployed or relied upon in order to advance a party's case, then fairness may require that disclosure of that advice be made available so that the court can properly assess that assertion."
"48. As to the question of waiver itself, it is not easy to find a succinct and clear definition of when it arises, going beyond general statements to the effect, for example, that the party alleged to have waived them has deployed them in some way as part of its case. But on any view in my judgment, first, the reference to the legal advice must be sufficient (a point I return to below) and second, the party waiving must be relying on that reference in some way to support or advance his case on an issue that the court has to decide.
49. I give two examples of what is clearly not waiver. First, a purely narrative reference to the giving of legal advice does not constitute waiver. This is because, on any view, there is no reliance upon it in relation to an issue in the case. Nor does a mere reference to the fact of legal advice along these lines, "My solicitor gave me detailed advice. The following day I entered into the contract". That is not waiver, however tempting it may be to say that what is really being said is "I entered into the contract as a result of that legal advice". The corresponding point is that if that latter expression is used, then there will be waiver .
60 .. in my judgment the correct approach to applying the content/effect distinction is this: the application of the content/effect distinction, as a means of determining whether there has been a waiver or not, cannot be applied mechanistically. Its application has to be viewed and made through the prism of (a) whether there is any reliance on the privileged material adverted to; (b) what the purpose of that reliance is; and (c) the particular context of the case in question. This is an acutely fact-sensitive exercise. To be clear, this means that in a particular case, the fact that only the conclusion of the legal advice referred to is stated as opposed to the detail of the contents may not prevent there being a waiver."
" When it comes to proof of knowledge under section 14A , the assertion by a claimant that he was unaware of the material circumstances until a certain date, carries with it the assertion that he did not have the requisite knowledge at any time before that date. To that extent, the assertion involves proving a negative. MAC is here saying that it did not have the requisite knowledge any earlier than 6 December 2006: but it does not want to be compelled to establish that proposition by having to disclose details of its investigations into the defendants' conduct only in order to establish that those investigations produced no credible leads which should have instigated a further enquiry leading to requisite knowledge about the Midas fraud and the other new non-fraud-derived claims against the defendants. However, sometimes, difficult and invidious choices have to be made if the evidence, without some waiver of privilege, risks being insufficient to enable the claimant to persuade the court that the running of limitation was postponed for as long as the claimant says."
" a claimant's plea that he could not with reasonable diligence have discovered the relevant matter will not of itself entail a waiver of privilege. However a claimant may find it hard to maintain that the limitation period should not begin to run from a period in which he was in receipt of legal advice unless he is prepared to waive privilege in that advice."
Waiver: submissions
Waiver: discussion
a. Unlike the sort of case referred to by Judge Havelock-Allen, where the state of mind of relevant personnel during the primary limitation period will be central to the question whether the primary period of limitation is to be overridden, here the primary period of limitation expired in about 2014. By November 2018 it had long expired. There are certainly issues as to what was known when, and whether reasonable diligence was exercised, but the purpose of including the information in Buss 1 is a different purpose from most of the limitation cases.
b. Read in this light, the purpose of the explanation at [165] and [166] is to explain the circumstances surrounding the instruction of the expert and the steps leading up to the discovery in general terms.
c. There is not in any sense a reliance on any particular document by Mr Buss. Indeed, he does not even refer expressly to documents, merely does so in general terms. I think the information he gives is some way away from reliance on the documents which he may be said to refer to implicitly. He merely goes through the various steps that were taken by the Claimants from November 2018 which led to the discovery of the mispricing fraud.
Conclusions
Note 2 [2013] EWHC 4038 (Comm) [Back] Note 4 [2008] EWHC 1729 (Comm). [Back] Note 5 [2018EWCA Civ 2652 [Back] Note 6 [2008] EWHC 1729 (Comm) at [53]. [Back] Note 7 [2011] EWHC 268 (Comm). [Back] Note 8 unreported 16 April 1997. [Back] Note 9 Namely the power of the court to look at the documents to see if it agrees with the claim for privilege. [Back] Note 10 [2004] EWCA Civ 330. [Back] Note 11 [2011] EWHC 268 (Comm). [Back] Note 12 [2019] 1 WLR 791. [Back] Note 15 [2018] EWHC 3179 (Comm) [Back] Note 16 [1984] BCLC 151 [Back] Note 17 [2009] ICR 479. [Back] Note 18 [2009] ICR 479 at [64]. [Back] Note 19 [2014] EWHC 892 [15] [Back] Note 20 [2020] EWHC 1393 (Comm) [Back] Note 21 [1986] WL 408062 [Back] Note 22 [1981] Com LR 138 [Back] Note 23 [2010] EWHC 767 (TCC) at [43] [Back] Note 24 1st ed 5.91. The reference in the current 3rd ed is 5.114: [Back]