The Court examined “without prejudice” privilege and litigation privilege as they apply to settlement agreements and their inspection by co-defendants.

In BGC Brokers LP & Ors v. Tradition UK & Ors,[i] the English Court of Appeal unanimously dismissed an appeal against an order for a settlement agreement to be disclosed in unredacted form. The Court found that neither “without prejudice” privilege nor litigation privilege applied to the settlement agreement, even though it reproduced confidential communications that would themselves fall squarely under one or both heads of privilege. The Court held that the reproduction and incorporation of confidential communications within the settlement agreement formed part of a new and distinct communication, the purpose of which was neither to negotiate a settlement agreement nor to gather evidence for the purposes of the litigation.

“Without prejudice” privilege applies to written or oral communications that are made for the purpose of a genuine attempt to settle a dispute between the parties.[ii]

Litigation privilege applies to confidential communications between a client and its solicitor, or either of them and a third party, for the dominant purpose of obtaining information or advice in connection with existing or reasonably contemplated litigation.[iii]

Facts

The claimants, BGC Brokers LP and others (BGC), are related companies that operate as inter-dealer brokers of financial products such as fixed-income securities and interest rate swaps. The defendants are parties that were allegedly involved in the leaking of confidential information from BGC to one of its competitors, Tradition (UK) Limited (Tradition). The First, Second, and Fifth Defendants (the Tradition Defendants) are Tradition itself and former employees of Tradition that were allegedly involved in the leaking of BGC’s information. The Third Defendant (Mr Cuddihy) and the Fourth Defendant (Mr Groan) were employed by BGC at all material times, and it was agreed among the parties that on several occasions Mr Cuddihy supplied confidential information that he had obtained from Mr Groan to one or more of the Tradition Defendants.

Once BGC became aware of the leak, it applied for an interim injunction against Mr Cuddihy, which was granted on 9 October 2017. The following day, BGC issued a claim form against the defendants. In the weeks that followed, Mr Cuddihy attended interviews with BGC’s solicitors, and Mr Cuddihy’s solicitors exchanged email correspondence with them. This was all done expressly on a “without prejudice and confidential” basis, and ultimately led to a settlement agreement (the Settlement Agreement) between BGC and Mr Cuddihy, which was signed on 2 November 2017.

The Settlement Agreement included a warranty from Mr Cuddihy that he had provided full and frank disclosure of all the confidential information that he gave to the Tradition Defendants. Crucially, for the purposes of this warranty, notes of the antecedent “without prejudice” interviews were appended to the Settlement Agreement, and specific “without prejudice” emails were expressly referred to in the Settlement Agreement (together, the Antecedent Documents).

The claims against the Tradition Defendants, however, progressed without settlement. On 8 April 2019, having received a redacted version of the Settlement Agreement as part of the disclosure process, the Tradition Defendants applied for specific disclosure and production of an unredacted version of the Settlement Agreement. For the Tradition Defendants’ defence, seeing both the claims made by Mr Cuddihy and the information that he had admitted to sharing would clearly be advantageous. Further, BGC noted in subsequent witness evidence that “an important element” of its strategy was to settle with Mr Cuddihy “on terms that he would cooperate by providing evidence in the claim against Tradition,” which was likely the strongest litigation target in terms of compensation. The content of the Antecedent Documents would therefore be highly relevant to the outstanding claims.

Judgment

The issue for the Court of Appeal was whether to allow the Tradition Defendants to inspect an unredacted copy of the Settlement Agreement in full (as had been ordered by the High Court at first instance).

It was BGC’s contention that the Antecedent Documents fell under “without prejudice” privilege, or alternatively, litigation privilege, and so the Settlement Agreement should be redacted with regard to these aspects before being inspected by the Tradition Defendants.

“Without prejudice” privilege

Counsel for BGC argued that the Antecedent Documents were subject to “without prejudice” privilege because that had been expressly agreed on when those documents were initially produced. As such, the Antecedent Documents should continue to be considered privileged because there had been no waiver of privilege. Merely being appended to the Settlement Agreement (or in the case of one of the emails, referred to in the Settlement Agreement) had no bearing on the purpose of the communications and should not retrospectively affect their status as privileged.

Arnold LJ  found that this argument missed the point. The Settlement Agreement and the Antecedent Documents were found to be “distinct communications”, and the order under appeal was for inspection of the Settlement Agreement. Notwithstanding the fact that the Settlement Agreement appended (or incorporated by reference) information contained within the Antecedent Documents, it was the purpose of the Settlement Agreement alone that was relevant.

The purpose of the Settlement Agreement was held as being to record and conclude a settlement, not to negotiate one, and so it did not fall under “without prejudice” privilege.

Litigation privilege

Counsel for BGC argued that the dominant purpose of incorporating the Antecedent Documents into the Settlement Agreement was to gather up evidence for the purposes of the litigation.

After noting that the burden of proof to establish privilege is on the party claiming privilege,[iv] Arnold LJ dismissed this argument. The evidence in the witness statement from BGC’s solicitors supporting the claim for litigation privilege only referred to the purpose of the communications set out in the Antecedent Documents, not to the incorporation of these communications into the Settlement Agreement. As explained above, this was not found to be a relevant consideration, and the Court looked to the face of the Settlement Agreement alone to determine its purpose.

The prevailing view was that the purpose of incorporating the Antecedent Documents was to “police” the Settlement Agreement and provide the legal foundation for a claim against Mr Cuddihy for breach of his warranty.

While an argument was made that the incorporation formed part of a “single wider purpose” to gather evidence for litigation, the Court did not find this explanation plausible. The purpose of policing the warranty in the Settlement Agreement was clearly at play, and differed from the purpose of gathering evidence for litigation. The single wider purpose was therefore not made out, and no part of the Settlement Agreement was found to be privileged.

Conclusion

This decision demonstrates the importance of considering privilege when drafting settlement agreements. Caution must be taken when reproducing existing privileged documents within a settlement agreement, and no presumption should be made that the privilege will be retained. Practitioners should bear in mind that the repetition of a privileged communication is considered to be a distinct communication, and will be assessed on its own merits as to legal privilege.

A further point is that arguments based on the contractual interpretation of the Settlement Agreement and how it referred to the Antecedent Documents were not persuasive to the Court — clarifying that practitioners cannot avoid the overall consideration of the purpose of a communication by means of contractual drafting.

This post was prepared with the assistance of Callum Rodgers in the London office of Latham & Watkins.

[i] [2019] EWCA Civ 1937.

[ii] Rush & Tompkins Ltd. v. Greater London Council [1989] AC 1280.

[iii] Three Rivers District Council v. Governor and Company of Bank of England (No 6) [2004] UKHL 48, [2005].

[iv] Starbev GP Ltd v. Interbew Central European Holding BV [2013] EWHC 4038 (Comm).