Court of Appeal dismisses appeal upholding Central Bank's claim to litigation privilege over without prejudice correspondence.

THE COURT OF APPEAL

No. 2016/21

Ryan P.

Peart J.

Hogan J.

BETWEEN/

JOHN STANLEY PURCELL

PLAINTIFF/

APPELLANT

AND

CENTRAL BANK OF IRELAND, THE ATTORNEY GENERAL

AND IRELAND

RESPONDENTS/

RESPONDENTS

JUDGMENT of Mr. Justice Gerard Hogan delivered on the 26th day of February 2016

1. This is an appeal taken by the plaintiff against the decision of the High Court (Hedigan J.) delivered ex tempore on 13th January

2016. In that decision Hedigan J. refused to order discovery of certain without prejudice correspondence passing between the Central

Bank on the one hand and the Irish National Building Society (“INBS”) on the other leading to the settlement of an administrative

inquiry which had been commenced by the Central Bank. Before exploring the somewhat unusual issues of privilege which arise on this

appeal, it is first necessary to sketch out the background to this appeal.

2. In companion judicial review proceedings (2015, No. 510JR), the plaintiff in these plenary proceedings, Mr. John Purcell, challenges

the validity of a proposed inquiry which the first defendant, the Central Bank, proposes to hold under Part IIIC of the Central Bank Act

1942 (as amended) (“the 1942 Act”). Mr. Purcell is a former executive director and secretary of the INBS. He retired from that

position on 31st March 2010 pursuant to a requirement from the Minister for Finance that the directors of banks and building societies

covered by the State guarantee in September 2008 retire their positions.

3. INBS is one of two major financial institutions offering banking services in the State which collapsed in the wake of the financial

crash of September 2008. It is unnecessary to dwell on the aftermath of these tumultuous events, save that it is sufficient to record

that the State (i.e., the taxpayers) was required to make payments in excess of €5bn. to INBS to make good losses which would

otherwise have fallen on the depositors and the creditors of the Society. By 2011 the deposit-book of INBS had been sold and in July

2011 its remaining assets were transferred to the newly formed Irish Bank Resolution Corporation (“IBRC”) following orders made to

this effect by the High Court under the terms of the Credit Institutions (Stabilisation) Act 2010. By 2012 the INBS was little more than

a shelf company with new management, no assets and – the plaintiff contends – no institutional memory of the events which pre-

dated September 2008.

4. In that year the INBS and IBRC brought proceedings entitled Irish Bank Resolution Corporation and Irish Nationwide Building Society

v. Purcell and others (2012, No. 3279P) against Mr. Purcell and other former officers of the society by which it was sought to make

these officers personally liable for the losses which INBC had suffered. Those proceedings were compromised in June 2015 with no

admission of liability by the defendants.

5. On 9th July 2015 the Central Bank served on INBS, Mr. Purcell and other persons associated with the management of the Society a

Notice of Inquiry pursuant to Part IIIC of the 1942 Act. In essence, the Notice of Inquiry alleged that Mr. Purcell was a “person

concerned” who participated in certain “prescribed contraventions” during the period between 1st August 2004 and 30th September

2008.

6. About a week later the Central Bank announced that it had reached a settlement of the case against the INBS. In that statement

the Central Bank stated:

“INBS has admitted multiple failings at several levels of its commercial lending process, from operational lending, to credit

review, its Credit, Provisions and Audit Committees all the way to its Board of Directors. INBS’s admitted failings amount

to a consistent and, at times, wholesale disregard for its own policies and procedures.”

7. The Bank further announced that while it was imposing a €5m. fine, given that the INBS had no assets, it did not propose to collect

that fine.

8. The plaintiff then commenced these plenary proceedings in which he challenged the validity of the settlement. Apart from

challenging the constitutionality of the administrative sanctions procedure, Mr. Purcell also contended that his constitutional right to a

good name as guaranteed by Article 40.3.2 of the Constitution was infringed by the publication of the settlement in the manner in

which it was. The particulars pleaded by the plaintiff include the following:

“The settlement was completely artificial in nature in that INBS has no assets and cannot have properly considered and

determined the alleged prescribed contraventions, which the Central Bank purports to assert that INBS have admitted to.

The announcement of the settlement was prejudicial to the plaintiff in implying that he participated in the admitted

contravention of INBS.”

9. Mr. Purcell has also commenced separate judicial review proceedings (2015, No. 510JR) in which he seeks to quash the decision of

the Central Bank to hold the inquiry. A central contention of the judicial review proceedings is that he is not a “person concerned”

within the meaning of the administrative sanctions procedure, since he no longer holds any post within INBS. He further maintains that

the Bank have infringed the principles of fair procedures by pre-judging the outcome of the inquiry having regard to the comments

made in the course of the publicity statement (“multiple failings…. all the way to its Board of Directors…”). While the plaintiff does not

as such use the term “bad faith” in his pleadings, what in essence is alleged is that the settlement in these circumstances was a pure

contrivance and did not represent a genuine or bona fide exercise of statutory powers by the Central Bank.

10. The plaintiff accordingly contends discovery of the without prejudice correspondence leading to the settlement is both relevant

and necessary in order to assist his case that the settlement in question was not a genuine one.

The decision of the High Court

11. As I have already noted, Hedigan J. refused to order the discovery sought. In the course of his ruling he stated:

“The damage to the interest of justice caused by non disclosure would need to be very clear and overwhelming in order to

set aside the privilege claimed where parties genuinely come and try to settle a case, open their secrets to the other

side. Here the most that has been offered to offset the very strong interest in the privilege is the possibility that the pre

settlement without prejudice correspondence between the Central Bank and INBS/IBRC may contain something that

proves bad faith on the part of the Central Bank in making the settlement. Yet no allegation of bad faith or misfeasance is

made against any particular person by the plaintiff in his pleadings. To establish a claim of bad faith the plaintiff relies on

open documentation to allege that the settlement was made with an empty shell of a company that had no institutional

memory or knowledge of anything that was been investigated. It is not possible to apprehend anything other than an

insubstantial hope that without prejudice correspondence might reveal something to add support for the claim of bad faith

to that which already exists in open correspondence.

I do not think that such a speculative claim can offset the reality of the strong interest in the privilege.”

12. Hedigan J. also found that there had been no waiver of privilege on the part of the Central Bank.

Whether privilege attaches to settlement documentation

13. There is no question at all but that litigation privilege attaches to settlement documents of this kind involving as it does

correspondence between the Central Bank (and its lawyers) and INBS (and its lawyers) leading up to the settlement not otherwise

covered by legal professional privilege. (The plaintiff does not seek to go behind the documentation in respect of which legal

professional privilege has been properly claimed). The reasons why such litigation privilege should attach to such documentation are

obvious and scarcely require re-stating. By definition, a settlement involves compromise or, at least, the exploration of the strengths

and weaknesses of both sides case. If litigants could not explore these matters on a without prejudice basis the potential for

settlement and compromise would be greatly undermined. As Keane C.J. observed in Ryan v. Connolly [2001] IESC 9, [2001] 1 I.R.

627, 631:

“If parties were in the position that anything they said or wrote in the course of negotiations, even when expressly stated

to be ‘without prejudice’ could subsequently be used against them, they would undoubtedly be seriously inhibited in

pursuing such negotiations.”

14. Litigation privilege is available to all litigants, regardless of their status as either natural or legal persons. It is also immaterial that

the litigant invoking the privilege in the present case, namely, Central Bank, is an autonomous body established by statute.

15. In the context of public bodies such as the Central Bank, litigation privilege differs from public interest privilege in that, as I have

just stated, the former privilege may be invoked by all litigants irrespective of their status. It is true that the scope of litigation

privilege is subject to certain exceptions (some of which I will presently consider) but it differs from public interest privilege in that,

where it is properly claimed, it is inviolate. By contrast it is clear from a long line of case-law starting from Murphy v. Dublin

Corporation [1972] I.R. 217 that public interest privilege essentially involves the balancing of competing considerations, principally

access to justice on the one hand and the public interest in ensuring that certain documentation or communications (e.g., the

protection of the identity of Garda sources) remain confidential on the other.

16. The resolution of litigious disputes is, of course, most desirable. Litigation consumes significant time, effort and money on the part

of the litigants and the ever-increasing amounts of complex litigation places burdens on the administration of justice. The same is also

true of contentious disciplinary hearings before administrative bodies such as that which is embraced in the administrative sanctions

procedure. It is for these reasons that litigation privilege not only exists, but that quite compelling – even exceptional – reasons are

required to displace it. As Clarke J. said in Moorview Developments Ltd. v. First Active plc [2008] IEHC 274, [2009] 2 I.R. 788, 820:

“The overriding principle is that a very heavy weight indeed needs to be attached to without prejudice privilege. The only

circumstances where, therefore, evidence of without prejudice negotiations can be admitted is where, in the words of

McGrath, Evidence “It can be clearly shown that greater damage to the interests of justice would be affected by non-

admission than by disclosure”. The exceptions to the general rule can be seen as deriving from that principle. For example

the whole purpose behind the privilege is to encourage negotiation and settlement of litigation. That purpose would hardly

be achieved if parties were precluded from leading evidence as to, at least, aspects of the negotiations, in circumstances

where it was contended that the negotiations had achieved the desired end of settling the litigation.”

17. A good example of the modern approach to this issue is supplied by the Supreme Court’s decision in Ryan v. Connolly. In that case

one issue was whether the plaintiff was induced not to issue negligence proceedings claiming damages for personal injuries by reason

of express requests to that effect contained in without prejudice correspondence which had been sent by the defendant’s solicitors.

Keane C.J. said ([2001] 1 I.R. 627, 632) that the Court could look at the correspondence for this purpose:

“The rule, however, although firmly based on considerations of public policy, should not be applied in so inflexible a manner

as to produce injustice. Thus, where a party invites the court to look at "without prejudice" correspondence, not for the

purpose of holding his opponent to admissions made in the course of negotiations, but simply in order to demonstrate why

a particular course had been taken, the public policy considerations may not be relevant. It would be unthinkable that the

attachment of the "without prejudice" label to a letter which expressly and unequivocally stated that no point under the

Statute of Limitations would be taken if the initiation of proceedings was deferred pending negotiations, would oblige a

court to decide, if the issue arose, that no action of the defendant had induced the plaintiff to refrain from issuing

proceedings.

It follows that, in a case such as the present, the court is entitled to look at the ‘without prejudice’ correspondence for

the purpose of determining whether the circumstances were such that the defendants should not be allowed to maintain

their plea under the Statute of Limitations.”

18. The Supreme Court ultimately held that the without prejudice correspondence did not in itself amount to a unilateral

representation that no proceedings should be issued.

19. The decision in Ryan nevertheless illustrates the point perfectly. If a defendant did make such an unequivocal representation in

without prejudice correspondence and the plaintiff acted on foot of same, it would be highly damaging to the administration of justice

if the plaintiff were not permitted to go behind the without prejudice correspondence in order to demonstrate his or her opponent’s

duplicity in the conduct of the litigation.

20. I stress these latter words because the decision of the English Court of Appeal in Savings and Investment Bank Ltd. v. Fincken

[2003] EWCA Civ. 1630, [2004] 1 All E.R. 1125 illustrates that it is really only this category of conduct which will allow a court to look

behind without prejudice correspondence of this kind. In that case the defendant admitted in without prejudice correspondence that

he owned shares in a certain company, a fact that he had hitherto failed to disclose to the plaintiff bank. After settlement talks

failed, the bank sought to amend its pleadings in order to add further particulars of material non-disclosure on the part of the

defendant.

21. The English Court of Appeal held that the bank could not rely on such disclosures made on a without prejudice basis for this

purpose. It was not sufficient to show that a party had made disclosures on a without prejudice basis: it was instead necessary to

show that the privilege itself had been abused. As Rix L.J. observed ([2004] 1 All E.R. 1125, 1140):

“ In my judgment that philosophy is antagonistic to treating an admission in without prejudice negotiations as tantamount

to an impropriety unless the privilege is itself abused. …..It is not the mere inconsistency between an admission and a

pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to

perjury, that loses the admitting party the protection of the privilege…... It is the fact that the privilege is itself abused

that does so. It is not an abuse of the privilege to tell the truth, even where the truth is contrary to one's case. That,

after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of

reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional

and needy circumstances….

Further considerations point in my judgment in the same direction. A litigant understands in general that he may make

admissions for the purpose of settling litigation under the protection of privilege if the negotiations fail. He may go into

such a meeting without legal advisors, indeed very often such meetings have better prospects of success if the principals

to the dispute meet alone. If the case against him is one of fraud or dishonesty, or if he has made an incautious affidavit

in the past whatever be the nature of the case against him, he moves into a situation of peril at the point at which he is

most candid. There may be no one present to warn him that the privilege with which the meeting began is in the process

of being lost, or of the danger of self-incrimination. In such circumstances cases of fraud or dishonesty become almost

impossible to settle. So here, whatever be the motives which led Mr. Fincken to admit his ownership of the shares, which

are unknown, it is in theory possible that, in seeking a final compromise, Mr.Fincken, or someone in an analogous position

to his, would be conscious that he might never be able to achieve finality without exposing his own past faults.

Alternatively, the less scrupulous who make no admissions are better served by the very rules which are designed to

encourage frank exchanges than are the more candid. Moreover, the well-advised litigant will be told that if he makes his

admission in a hypothetical form, contingent upon settlement, then, as Ms. Gloster [counsel for the Bank] herself

accepted, the privilege cannot be lost. This is a recipe for legalism and has the danger of turning the without prejudice

meeting into a potential trap and one which may moreover be exploited by litigants who do not enter into such

discussions altogether in good faith…..”

22. In my view, therefore, it would be necessary for the plaintiff to demonstrate that the Central Bank had actually abused the

privilege so far as the conduct of the litigation was concerned before this Court could – or should – sanction the lifting of this

litigation privilege. For my part, I cannot see that the Central Bank has so abused the privilege.

23. In arriving at this conclusion, I do not overlook the fact that Mr. Purcell contends with some force that the settlement with INBS

is a pure contrivance and is wholly artificial. Yet it must be stressed that that settlement is a complete irrelevance so far as either

the prosecution or defence of the Notice of Inquiry which he is facing under the administrative sanctions procedure is concerned. It is

clear from the correspondence between the present management of INBS and the Central Bank which has been opened that the

present directors and officers of the Society have no direct knowledge of the conduct of the legacy directors such as Mr. Purcell.

Insofar, therefore, as the present management of INBS have accepted that there were, historically, “multiple failings” on the part of

the Society and – perhaps - by implication, its legacy directors, this could have no probative value whatever so far as the Central

Bank’s case under the administrative sanctions procedure against Mr. Purcell is concerned.

24. I would also observe that the plaintiff is still entirely free to maintain these proceedings against the Central Bank. So far as the

merits of that case is concerned, I express no view at all: it is sufficient to say that the plaintiff has available to him the basic legal

materials to support his case, including the nature of the settlement itself and the admissions made by the present INBS management

to which I have already alluded regarding their lack of any first hand or direct knowledge of pre-2010 events.

Waiver

25. It remains only to consider the second contention advanced by the plaintiff, namely, that the Central Bank waived its privilege by

making a public statement regarding the INBS settlement which, he contends, impliedly suggested that he (and others) were also

guilty of “multiple failings” such as would in time justify an adverse finding under the Administrative Sanctions Procedure against him

(and others).

26. There is no doubt but that a litigant may waive this litigation privilege, either expressly or by implication. An example here is

supplied by a recent decision of the English High Court in Property Alliance Group Ltd. v. Royal Bank of Scotland [2015] W.L.R.(D) 251,

[2015] EWHC 1557. In that case the plaintiff (“PAG”) claimed damages for misrepresentation contending that the defendant bank had

manipulated the sterling (GBP) LIBOR rate. The Bank had, however, negotiated a settlement with the UK regulatory authorities in

which it accepted that it manipulated the LIBOR rate for the Swiss franc (CHF) and the Japanese yen (JPY). As to this issue Birss J.

stated:

“PAG's particulars of claim ….alleges that the implied representations about LIBOR were false on the basis that RBS had in

fact manipulated LIBOR. In support PAG rely on the findings of misconduct in the Final Notice, amongst other things. In its

defence RBS responds to this [by admitting] manipulation of CHF and JPY LIBOR, [but it] expressly denies manipulating

GBP LIBOR and makes a general denial of the allegations... However RBS also pleads positively as follows: "For the

avoidance of doubt, there have been no regulatory findings of misconduct on the part of RBS in connection with GBP

LIBOR.”

RBS characterised this as a ‘mere mention’ of the finding and as nothing more than the defence ‘noting the

(incontrovertible) fact that no regulator has made findings against it in respect of GBP’. That is unreal. The bank's formal

defence in these proceedings advances a positive point that the regulators have not found misconduct relating to GBP

LIBOR. In taking this course RBS has itself put in issue the basis on which the regulatory findings were made.”

27. The decision in Property Alliance Group is thus an example of where the conduct of the defendant in the course of the litigation

amounted to a waiver of the privilege. This type of waiver of litigation privilege is similar to those cases where a litigant will be held to

have waived legal professional privilege by invoking such documents for his or her own purposes in the course of the litigation: see,

e.g., Hannigan v. Director of Public Prosecutions [2001] IESC 10, [2001] 1 I.R. 378.

28. Accordingly, the essence of Property Alliance Group is that Birss J. found that the Bank could not make a formal assertion in its

pleadings about the nature of the settlement with the regulator – with the obvious implication that while there was a finding regarding

the manipulation of the CHF and JPY LIBOR, that it was not guilty of manipulating the GBP LIBOR – without also as a matter of fairness

permitting PAG to go behind the litigation privilege in respect of the regulatory settlement order to explore the GBP LIBOR issue.

29. I cannot think that the present case comes within the scope of the decision in Property Alliance Group. One may acknowledge

that the Central Bank’s publicity statement might have been more happily expressed so far as parties other than INBS were

concerned. Yet the critical point is that the Central Bank have never - as yet, at least - formally put the terms of the INBS

settlement at issue or sought to rely on those terms adversely as against the plaintiff. If, for instance, the Central Bank were to

invoke the terms of the settlement by way of affirmative defence in these proceedings or in some other affirmative fashion in the

course of the administrative sanctions procedure, then, in principle, the plaintiff might legitimately contend that the litigation privilege

has been waived in the light of cases such as Property Alliance Group.

30. As nothing of the kind has, as yet, occurred, I do not consider that the plaintiff can contend that the litigation privilege has been

waived.

31. For completeness I should record that the counsel for the Central Bank, Mr. McDermott S.C., indicated that the members of the

Court were free to inspect these documents should we think it appropriate to do so. In essence, however, the issue for resolution by

for this Court was simply whether the litigation privilege had properly been claimed by the Central Bank and, if so, whether that

privilege had been waived. Given that this Court ultimately concluded that it should uphold the Bank’s claim of litigation privilege, no

purpose would have been served by inspecting these documents. In these circumstances, we did not think it necessary to avail of

this offer.

Conclusions

32. In summary, therefore, I would uphold the Central Bank’s claim to litigation privilege and reject the submission that such had been

waived. It follows, therefore, that I would uphold the decision of Hedigan J. in the High Court and dismiss this appeal.