Are Confidentiality and Common Interest Agreements sufficient to protect privilege when discussing arbitration claims with potential funders?
What is privilege?
Arbitration often obliges a party to disclose documents relevant to its case, whether helpful or not. Being able to establish privilege in a document allows a party to withhold such documents from production to a third-party, court or tribunal. If privilege is established, this will ensure that advice, such as the strengths and weaknesses of a case, between a lawyer and his client is kept confidential, allowing the management of the case to proceed most effectively.
The types of privilege that can be claimed under English law are:
Legal advice privilege: confidential communications between a lawyer and his client, which have come into being for the purpose of providing and receiving legal advice.
- Litigation privilege: communications between either a lawyer and his client or
- Common interest privilege: this applies to documents which are otherwise privileged and are shared between parties who have a ‘common interest’. Whilst disclosure of a privileged document to a third-party would ordinarily lead to the privilege being waived, by demonstrating a common interest, the privilege remains.
Maintaining privilege over documents provided to / created by third-party funders
Claimants do not necessarily waive privilege when discussing a case with a third-party funder. Firstly, for privilege to be claimed the evidence in question must be confidential.
However, disclosure of documents to a third-party i.e. a third-party funder, may lead to confidentiality being waived. It is therefore important that any documents provided to a funder are given on the explicit basis that the funder will keep all documents confidential; this can be done by way of a confidentiality and common interest agreement (see below).
A third-party funder is introduced into the relationship between a lawyer and a client for the purposes of furthering the possibility of litigation or arbitration normally at the due diligence phase before proceedings have been formally commenced to consider the merits and costs of legal action.
There are two types of documents a third-party funder will have access to:
- lawyer to client communications – these relate to the potential action and are created by the parties’ for the purposes of their own due diligence of the litigation / arbitration. These are then shared with third-party funders. For privilege to apply, the dominant purpose of these communications should be for the conduct of the litigation / arbitration proceedings or for the giving of legal advice. If documents are passed on to a third-party funder they must be on the express terms that privilege is not waived and the receiving party undertakes to keep the documents confidential. Alternatively, a third-party funder may be considered to share a common interest in the communications provided by the lawyers.
- communications originating from the third-party funder – shared with lawyer and client. These documents arguably can receive the protection of litigation privilege if they relate to a party’s litigation strategy and are for the dominant purpose of funding / conducting the litigation. Whether privilege applies will also depend on the timing of the creation of the documents.
Confidentiality and common interest agreements
In order to maintain the confidentiality of documents and in advance of providing any documents to a prospective third-party funder, it is advisable to enter into a confidentiality and common interest agreement with a prospective third-party funder. Such an agreement will set out a clear basis for maintaining legal privilege over documents shared with the funder.
In order to protect privilege, the agreement should cover the following issues:
- assert that the documents to be shared between the party and the prospective third-party funder are subject to privilege. It will be important to clearly set out the nature of the privilege;
- state that documents are prepared, compiled and provided to the third-party funder for the sole purpose of pursing the arbitration / litigation proceedings;
- state that the sharing of the relevant documents will not affect their confidentiality nor waive privilege over the documents; and
- state that the parties, in particular the third-party funder, will take all possible steps to maintain the confidentiality in all documents shared under the agreement.
When discussing a case with a third-party funder, it is important that the funders enter into a confidentiality agreement. This will help maintain the confidentiality of the documents, thereby helping to protect privilege.
This article was first published in Clyde & Co's International Arbitration 1/3LY. Please click here to read the publication.