The court disagreed that the audit report was protected by without prejudice privilege for the following reasons:

1. The without prejudice rule may arise in two instances:
   

   (i) It is founded in the public policy of encouraging parties to settle their dispute outside of the courtroom by protecting admissions made during without prejudice discussions from being held against a party in the underlying litigation; and

   (ii) It may also arise from the express or implied agreement between the parties.
   
   

2. The report was not automatically cloaked in without prejudice privilege simply because its commissioning was discussed in a without prejudice meeting. In particular, it was an independent report produced by a third party and was not a statement or offer made during the course of without prejudice negotiations, was not a record of the negotiations between the parties and did not record any admissions made by either party. In the circumstances, the court held that the report did not fall within the without prejudice rule on public policy grounds.
3. There was no express agreement between the parties that the audit report would be without prejudice, and the court held that it was “impossible to identify any…implied agreement on the available evidence” [para 72].

The judgment is a stark reminder that in the absence of a clear agreement between the parties, a third-party report commissioned in the context of settlement negotiations will not benefit from the without prejudice rule and will be subject to disclosure in the underlying proceedings.

Litigation privilege

It is well settled that the critical question for litigation privilege is whether the relevant document was created for the sole or dominant purpose of conducting litigation. The application of this principle has recently been considered in Noel Anthony Clarke v. Guardian News & Media Limited [2025] EWHC 550 (KB) and in Krishna Holdco Limited v. Gowrie Holdings Limited (and others) [2025] EWHC 341 (Ch).

Noel Anthony Clarke v. Guardian News & Media Limited

The underlying dispute concerned a libel claim brought by Noel Clarke against the Guardian. During the proceedings, the Guardian provided to the claimant for inspection 60 audio files, including recordings of telephone conversations and a number of contemporaneous transcripts produced for journalistic purposes, which were largely unintelligible.

Subsequent to disclosure, the Guardian commissioned the production of professional certified audio transcripts. Noel Clarke sought disclosure of the transcripts, which the Guardian resisted on the basis that those transcripts were subject to litigation privilege. However, the court rejected the Guardian’s argument and held that a transcript of a non-privileged conversation cannot itself be privileged if the underlying conversation was not privileged.

This is an important reminder that the production of transcripts of non-privileged conversations may be subject to disclosure in proceedings. Parties should be mindful of this fact before commissioning transcripts to be produced.

Krishna Holdco Limited v. Gowrie Holdings Limited

The underlying dispute concerned an unfair prejudice petition in which Krishna Holdco Limited (Krishna) successfully obtained a judgment requiring Gowrie Holdings Limited (GHL) to buy its shares of a jointly owned company called Laxmi BNS Holdings Limited (LBNS).

During the proceedings, GHL had disclosed signed board minutes of LBNS that referred to a valuation report prepared by an auditor relating to the potential sale of two of LBNS’s subsidiaries to GHL. GHL claimed that the valuation report was subject to litigation privilege, which Krishna contested on the basis that: (i) an exploration of the sale of GHL’s subsidiaries could not properly be described as conducting litigation, even if the motivation driving the sale, and thus production of the report, was anticipated litigation; and (ii) any privilege would belong to LBNS, who had not asserted privilege over the report. This second argument was advanced solely on the basis that the audit report was addressed to LBNS, who also paid for the report.

The court rejected Krishna’s arguments on the following grounds:

1. The motivation of a party is relevant to the question of whether a document was produced for the purpose of conducting litigation. In particular, in determining whether a valuation report was produced for the purpose of litigation, one needed to look beyond the form of the transaction proposed and ask why it was intended to happen and therefore why the valuation report was produced.
2. The relevant background was that Krishna was refusing to provide certain ‘know your client’ information to LBNS’s bank, with the effect that the bank was threatening to withdraw its banking facilities. The potential sale of LBNS’s subsidiaries to GHL was considered as a possible response to that threat, and the valuation report was produced as part of that response strategy. Therefore, it was held by the court that the valuation report was undertaken as “part of the ongoing and developing set of hostilities which had begun to separate the parties” [para 12] and for the sole or dominant purpose of responding to one of the key issues forming part of the dispute between the parties. It was therefore subject to litigation privilege.
3. As to the question of whose privilege it was to assert, the judge held that the court ought to take a “realistic and, indeed, commercial view of the facts”, look beyond the addressee of the valuation report and “look at the substance rather than the form” [para 18]. Although the report was addressed to LBNS, the court held that GHL instigated its creation. The report was produced in the context of the dispute between GHL and Krishna, and it was GHL’s interest that fell to be protected.

Client Alert 2025-118