Dispute update - August 2011

Boardroom Briefing

Legal Privilege for Non-Lawyers

If you’re a director and you spend time with litigation lawyers, there are (at least) two things which may have made you scratch your head in mystification. 

One thing business-people often struggle with is the idea of disclosure of documents.  At the same time as Mikhail Gorbachev was bringing glasnost to the Soviet Union, the Lord Chancellor was busy introducing openness into litigation, with slightly less far-reaching consequences. 

If a document is relevant to the issues, the starting principle is that it has to be disclosed to the other side.  It can be infuriating having to hand over the piece of paper that undermines your entire case and very tempting to make it disappear.  But the canny business-person knows that lawyers have legitimate ways of keeping troublesome documents out of the case.

Which brings us to the wonderful world of legal privilege.  Some might think that privilege is just the lawyers’ cunning way of ensuring that there will always be a place for us at the party.  It can be a complex and confusing area, but it needn’t be.

Our aim is to explain in simple terms what arguments your business can rely on the stop the other side sniffing your “smoking gun”.

There are several types of privilege, and the most common are these:

• Legal Advice Privilege
  As a general rule, you need not disclose to the other side any communications you have had with your lawyer for the purpose of obtaining legal advice.  Advice from your lawyer about commercial issues probably will not be privileged.  Internal discussions about the merits of your case will not be privileged unless they involve an in-house lawyer. 
• Litigation Privilege
  You can also withhold documents which are created once litigation is contemplated.  After the other side has informed you that it intends to make a claim, documents which come into being mainly for the purposes of the litigation are privileged. 
• Without Prejudice
  The courts encourage parties in litigation to try and resolve their differences outside the court process.  For that reason, it is important to keep a line of communication open between the parties.  It’s equally important that parties should be able to make concessions in the interests of reaching agreement, without the risk of the other side informing the court. 
  Discussions which are genuinely aimed at settlement will be protected.  It is usual to describe these communications as “without prejudice”, but they can be protected even if these words don’t appear.
• Confidential Documents
  The general rule is that confidential documents aren’t privileged.  As uncomfortable as it may be, documents which contain information which is confidential to your business might have to be shown to the other side.  The court is practical though, and if documents are particularly sensitive (eg. trade secrets), it will find a way to offer some protection to the documents.
• Other types of privilege
  There are various other types of privilege, such as:
  Privilege against self-incrimination: if documents would expose you to a risk of criminal charges, you can withhold them, although you may have lost the sympathy of the court by then!
• Public interest privilege: the court rules provide a separate process for dealing with disclosure of documents which should not be disclosed in the public interest.
• Practical Steps
• As soon as a claim is made, you must halt any routine policy for destruction of documents which might be relevant.  You could be criticised for destroying documents after a claim has been made, and your credibility affected.
• As soon as the claim is made, pull together all documents which might be relevant, whether helpful or damaging.
• Always involve your lawyer in discussions about things which could become contentious. If correspondence is sent the lawyer, it could well keep the document privileged.
• You should take steps to secure any electronic documents such as emails as soon as possible, and if you are unsure, speak to your lawyer.

So do take steps to protect yourself from having to disclose those smoking guns and hidden nasties by following our handy hints.

Legal Update

As we roast in the sultry city heat in these dog days of summer, all we have to soothe us are the condensation dripping down the neck of an ice cold beer and the latest from the Royal Courts of Justice.  Admittedly, it hasn’t been very hot, and the cases reported this month are nothing to get excited about.
 
Towers v Premier Waste Management Limited [2011] EWCA Civ 923

We begin our round up of the latest legal developments with a case on directors’ fiduciary duties.

Mr Towers was a director of Premier Waste Management Limited and in 2003 he accepted the free loan of plant and equipment from a customer of the company, which had been arranged by another employee of the company.  Mr Towers didn’t disclose this loan, and it wasn’t until 2008, a year after he had left, that it came to light when the customer sent the company an invoice.
During the loan, some repairs became necessary and Mr Towers’ colleague arranged for the company to pay for a repair.

The company brought a claim against Mr Towers for an account of profits based upon his breach of fiduciary duty. Mr Towers was found liable in the sum of £8,000 and he appealed. Mummery LJ, delivering the judgment of the Court of Appeal, held that Mr Towers had diverted from the company an opportunity from which the company might otherwise have profited. 

In so doing, he had put himself in a position of conflict with, and disloyalty towards, the company, which was a breach of his fiduciary duties (at the time these duties were equitable but are now codified in ss.175 and 176 Companies Act 2006). It did not matter that the company would not have taken its opportunity to take a free loan of the equipment, that the benefit Mr Towers received was small, or that a company employee made the arrangements.

Inframatrix Investments Limited v Dean Construction Limited [2011] EWHC 1947 (TCC)

This is a surprising case and a rare outing for Part 24 of the Civil Procedure Rules.  For the uninitiated, Part 24 deals with applications for summary judgment, which may now be made by either party.

This was a case in which Dean Construction carried out construction works for Inframatrix, which were more or less completed by February 2009, although no certificate of practical completion was given. Inframatrix was unhappy with the standard of workmanship and refused to pay Dean Construction’s outstanding invoices. 

Without prejudice discussions failed to result in settlement and Inframatrix issued proceedings in December 2010 alleging that the work was defective. Dean Construction raised a counterclaim and applied for summary judgment.  The essence of the application was that the contract contained a bespoke limitation clause preventing any claim being brought more than one year after practical completion. 

Inframatrix argued that the contractual limitation period had not yet started to run because there was no certificate of practical completion. 

Behrens J held that in the absence of a certificate of practical completion, the parties must have intended that the one year limitation would run from the date on which Dean Construction last performed any services on the project.  That period had passed, so Inframatrix could not pursue its claim.

Inframatrix argued that the limitation point was only taken by Dean Construction at a late stage and by virtue of its participation in without prejudice discussions had waived its right to rely on the defence.  The Judge was unimpressed by the argument and held that there had been no conduct by Dean Construction which could give rise to an estoppel.  Summary judgment was therefore granted to Dean Construction.