Privilege lost in otherwise protected documents due to inclusion in settlement agreement

The basis of the judgment was that a settlement agreement, as a matter of public policy, does not attract privilege once it is signed and binding. It is not possible to separate a document, which does not as a whole attract privilege, into parts that are and are not privileged.

Background

If a communication is privileged then it does not need to be disclosed in litigation. This case concerned the legal principles relating to both without prejudice (“WP”) privilege and litigation privilege:

• WP privilege applies to statements made between parties in a genuine attempt to settle an existing dispute. Communications regarding settlement terms between parties will attract WP privilege, though the resulting settlement agreement will not.
• Litigation privilege applies to confidential communications between parties, their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation.

The basis for these rules is to encourage parties to settle their disputes without resort to litigation, by providing reassurance that anything said in the course of such negotiations will not be used against them in court proceedings.

Facts of the case

The case concerns a breach of confidence claim brought by New York-based BGC Brokers LP (“BGC”), which is accusing its direct competitor Tradition (UK) Ltd (“Tradition”) of misusing confidential information to tailor its recruitment strategy after hiring several BGC employees.

The claim arose out of a leak of confidential information by two of BGC’s brokers to a broker employed by Tradition. The claim was originally made against five co-defendants, but BGC then entered into a settlement agreement with one of them.

During negotiations over the settlement agreement, the individual in question had agreed to act as a witness for BGC and provide evidence against Tradition. Appended to the agreement were the texts of emails and notes of meetings that had taken place in the period leading up to it, which contained evidence of the confidential information concerned and who had leaked it. The agreement also referred to another email that had been sent during the settlement discussions.

When these documents were created they all attracted WP privilege, as they were made for the purpose of achieving a settlement between the parties. BGC disclosed a redacted version of the agreement, hiding the WP documents, to the other four defendants. They then made an application to a master of the High Court (“HC”) for disclosure of the unredacted version.

Initial decision

The HC master decided that BGC could not claim privilege over any of the settlement agreement and ordered it to disclose an unredacted version. The reasons were as follows:

• Once the documents containing the correspondence between the claimant and defendant were incorporated into the settlement agreement, they formed part of that agreement and could not be separated from it – so they no longer attracted WP privilege.
• Litigation privilege does not arise between opposing parties to litigation, so the correspondence did not attract privilege on that basis either.

This decision was subsequently upheld by a HC judge, and BGC appealed to the CA.

Court of Appeal’s ruling

With regard to WP privilege, the HC had held that it was not possible to distinguish between different parts of the same agreement: all the relevant documents formed part of the agreement and could not be divorced from it. They were therefore no longer subject to WP privilege.

Before the CA, BGC argued that the privileged communications had not lost their status by being included in the settlement agreement, as the courts below had found no waiver or applicable exception to privilege. The CA, however, agreed with the HC that the material communication was the settlement agreement itself, so any protection the original communications enjoyed was not relevant. A settlement agreements does not attract privilege, therefore neither does the text of the communications that are incorporated into it.

As to litigation privilege, BGC relied on the principle that this can be claimed over communications where the dominant purpose is to gather evidence. BGC argued that this was the purpose for which the communications in question had been created.

Rejecting this, the CA said that relevant factor was the dominant purpose for including the communications in the settlement agreement. That purpose was to benefit from and rely on the representations and warranties they contained. The communications therefore did not have the required dominant purpose, and did not attract litigation privilege.

Accordingly, the CA dismissed BGC’s appeal.

Implications for employers

This case highlights some important practical points for employers who are engaged in litigation and negotiation:

• Employers should be wary of what is included or referred to in a settlement agreement. Where possible, negotiation documents should be kept separate from the resulting agreement, as combining the two can lead to loss of privilege protection.
• Rather than incorporating negotiation documents into the settlement agreement, an alternative option in some cases might be to specify the details in the body of the agreement and rely on these as contractual statements instead.
• It is also important to remember that correspondence between opposing parties in litigation will not attract litigation privilege, so employers should be mindful of what is discussed in inter-party communications.

This is one in a series of cases over the past few months regarding the loss of privilege. See also our recent article discussing the Employment Appeal Tribunal’s decision to order an employer to disclose privileged material on the basis that it could not “cherry pick” the documents it wanted to rely on.

BGC Brokers LP and others v Tradition (UK) Ltd and others – judgment available here