High Court Allows Company to Claim Legal Advice Privilege as Successor in Title
In Sports Direct International Plc v Minor & ors  IEHC 650, Sports Direct International plc (Sports Direct) sought enforcement of various agreements which they alleged governed the relationship between the parties as shareholders of Warrnambool (the Company). The Defendants denied that the shareholders of the Company were bound by these agreements and also alleged that Sports Direct was conducting itself in a manner calculated to damage the Company.
In this context, a dispute arose as to the adequacy of discovery.
Discovery by Sports Direct
Privilege was claimed by Sports Direct over e-mails between a Mr Mellors, the former finance director of Sports World International Limited ("SWIL", now Sportsdirect.com, a 100% wholly owned subsidiary of Sports Direct), Sports Direct, and other companies in the Sports Direct Group and a firm of solicitors. The documents over which privilege was claimed by Sports Direct were generated at a time when Sports Direct was not in existence. The correspondence between Mr Mellors and the solicitors was for the purpose of obtaining legal advice for (a) SWIL and (b) Mr Ashley, the executive deputy chairman of Sports Direct.
On the incorporation of Sports Direct Mr Mellors became its finance director. Then, as part of a group reorganisation Sports Direct acquired the shares held by SWIL. Sports Direct claimed that the documents over which they claimed privilege were acquired by Sports Direct as successor in title to SWIL.
It also claimed that, even if the documents were owned by SWIL, they were in the possession, power and procurement of Sports Direct, by virtue of SWIL, (a) being a 100% subsidiary of Sports Direct, and (b) Mr Mellors having become an employee of Sports Direct following the reorganization of the Sports Direct Group. Consequently, there was no waiver of privilege on the part of SWIL or Mr Ashley, and Sports Direct, did not have permission to waive privilege over the documents in question.
Sports Direct also claimed a joint or common interest privilege over the documents with SWIL and Mr Ashley on the basis that Sports Direct was SWIL’s successor in title to the shares, part of the same group of companies with common directors, and the parent company of SWIL, with identical interest in the rights attaching to the shares.
The Defendants disputed all claims to privilege made by Sports Direct on the grounds: (1) if legal advice was sought, Sports Direct was not the party seeking it and so was not entitled to claim privilege; (ii) Sports Direct could not claim common interest privilege; and (iii) the documents over which privilege was claimed were concerned with legal advice as opposed to legal assistance as they were connected with the IPO of Sports Direct on the London Stock Exchange.
It was accepted by Sports Direct that the documents, inter alia, recorded the issues/steps in a transaction, and so veered towards the ‘legal assistance’ end of the scale. However, they also maintained that the documents reflected legal advice obtained in respect of the reorganization and their solicitor swore an affidavit to this effect.
The Court undertook a thorough analysis of the law and the authorities dealing with privilege and, in particular, common interest privilege. It noted that the correct test for common interest privilege was (1) would the documents be privileged in the hands of the party transmitting the information, assuming no disclosure had been made? If yes, (2) was the relationship between the parties sufficiently close that the transmission of documents should not be held to amount to an implied waiver of the privilege? In this regard the court noted that it should consider the parties’ relationship, the nature and purpose of the disclosure, whether there was an objective intention to waive privilege on the part of the holder, and whether it was reasonable to conclude that there was an implied waiver of the privilege.
The Court held that Sports Direct was entitled to claim privilege in respect of the relevant documents by virtue of its being successor in title (i.e. it now owned SWIL). To the extent that there was disclosure of advices between Mr Mellors and/or Mr Ashley, both Sports Direct group company officers operating sometimes in various capacities, the court considered that common interest privilege arose and there was no intention to waive privilege. The Court noted that any waiver should not be inferred lightly.
With regard to the argument that the documents constituted legal advice rather than legal assistance the Court held that information collated for the purpose of providing legal assistance as opposed to the actual tendering of legal advice was not privileged. However, it went on to hold that those documents were not in fact necessary either for disposing fairly of the dispute arising between the parties, or for saving costs and declined inspection.
Discovery by the Defendants
Sports Direct, sought an order striking out the defence and counterclaim for failure to make proper discovery however, the court was of the view that there was nothing before the court to suggest that the Defendants had failed to make proper discovery and refused the application. In this context the court had regard to the affidavit sworn on behalf of the Defendants noting that the court places a premium as to what parties swear in an affidavit. In any event the court noted that, it would only be in the most egregious of circumstances that a court would take strike out a pleading without affording the offending party some opportunity to cure any failure.
Comments by the Court
The Court noted that the process of discovery is intended to facilitate the efficient despatch of litigation, not to frustrate it and it urged the parties to remember that co-operation, not confrontation would better serve them in securing a less costly, more timely, and still-thorough resolution of the issues arising between them.
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Date Published:10 November 2015