No privilege for fishing expeditions: Kyla Shipping v Freight Trading Ltd

Background

Various claims and allegations are relevant to the decision:

• Kyla Shipping Co Ltd ('Kyla') alleges that various forward freight agreements ('FFAs') entered into with the Defendants are void because of an agreement between the Defendants to fraudulently enrich themselves at Kyla's expense (the 'Mispricing Claim').
   
• Kyla first discovered the facts and matters giving rise to the Mispricing Claim in the context of investigations arising from an earlier dispute (the 'Shareholder Dispute') with Kyla's minority shareholder, YPA, which claimed that a dividend should have been declared. YPA was an associated company of one of the Defendants in the Mispricing Claim.
   
• In correspondence with YPA relating to the Shareholder Dispute, Kyla's majority shareholder, Nikolaos Livanos ('NEL'), had also raised concerns about mismanagement by YPA and associates in respect of the FFAs (the 'Mismanagement Allegations').

In a witness statement in the Mispricing Claim, Kyla's solicitor had explained when and how Kyla had become aware of the facts and matters giving rise to the Mispricing Claim. In particular, he described how, in around mid-November 2018, Kyla instructed an expert to audit the FFAs in order to 'make good any legitimate grievance that might exist, for the sake of providing ballast in the correspondence with' YPA in relation to the Shareholder Dispute. However, the audit revealed the alleged fraud giving rise to the Mispricing Claim, leading to the commencement of the instant proceedings.

Litigation privilege

The main issue considered by the Court was whether the correspondence with the expert was privileged:

• Kyla claimed this correspondence was subject to litigation privilege on the basis that the instruction of the expert was for the dominant purpose of (a counterclaim in) the Shareholder Dispute; and
   
• The Defendants asserted that, at best, the instruction of the expert was a 'fishing expedition' for the purpose of seeing whether or not there were grounds for a legitimate complaint in relation to the Mismanagement Allegations, which might be deployed against YPA.

The Court found as follows:

• As usual, the burden is on the party claiming privilege to prove it subsisted in relevant communications. Kyla had not discharged that obligation;
   
• The purpose of the expert report was 'supporting [the majority shareholder's] mismanagement allegation in correspondence.' Whilst the Shareholder Dispute (i.e. the dispute over whether a dividend should be declared) was in reasonable contemplation at the time, the evidence did not support the contention that proceedings or a counterclaim in respect of the Mismanagement Allegations were in reasonable contemplation at the time of the expert instruction. Even if such proceedings had been contemplated, the parties to that dispute would in any event have been different to those in the Shareholder Dispute;
   
• The reference in the witness statement to the purpose of the expert instruction being to obtain 'ballast' in the correspondence with YPA in respect of the Shareholder Dispute was 'difficult to square' with a claim to litigation privilege; and
   
• In conclusion, based on the limited evidence put before the Court, the dominant purpose of the expert instruction appeared to be to 'provide backing' for the Mismanagement Allegations but Charles Hollander QC considered that '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'.

Waiver of privilege

The second issue which fell for determination was whether certain references in the solicitor's witness statement constituted a waiver of privilege in any document and, if so, whether that waiver gave rise to a collateral waiver over other documents relating to the same issue.

Charles Hollander QC determined that privilege was not waived in this case, holding:

• The Court's task is to consider whether the party is relying on the contents of privileged material. This is highly fact specific;
   
• If a party relies on the contents of privileged material, there will be a waiver of privilege in that material. There will also be a collateral waiver over other privileged documents on the same issue if, and only to the extent that, it is necessary to ensure fairness as between the parties: 'it is only fair to the other party that the latter has an opportunity to satisfy itself that what has been disclosed is not a partial account'; and
   
• In Kyla, potentially privileged communications were referenced only to explain certain events in general terms. There was no reliance on any particular document (indeed the witness statement did not expressly refer to any specific documents). Accordingly, 'the information [the solicitor] gives is some way away from reliance on the documents which he may be said to refer to implicitly.'

Key takeaways

Charles Hollander QC's decision on waiver of privilege is a helpful reminder of the fact-specific nature of that test. However, it is clear from the decision that the Defendants' suggestion of waiver in Kyla was rather optimistic, because the witness statement in question simply contained general references to a class of documents, without express references to any specific documents and there was no reliance on the contents of any privileged materials, and therefore no waiver.

As to litigation privilege, although Charles Hollander QC did not say so explicitly, he appears to have accepted the Defendants' submissions that the instruction of the expert had been a fishing expedition, upon which Kyla/NEL had embarked in the hope of finding something to use against YPA and/or its associates. It did not matter that the Shareholder Dispute was already afoot at the time because the expert was not being instructed to consider the issues in dispute in that context. Thus the dominant purpose of the expert's instruction was not, in fact, the conduct of the Shareholder Dispute itself, or any other litigation which was reasonably in contemplation (there being none at the time).

Accordingly, the decision illustrates that litigation privilege does not provide carte blanche to instruct an expert to investigate in the hope of finding something to litigate about. In turn, this underlines again the need for parties and their lawyers to think carefully about privilege before creating communications with third parties (such as experts) concerning possible claims. For litigation privilege to apply, there must be specific, adversarial, litigation, reasonably in contemplation, and the instruction of the third party must be for the dominant purpose of the conduct of that litigation.