UK: Court of Appeal Overturns Legal Advice Privilege Decision

Last Updated: 10 April 2003

On 3 April 2003, the Court of Appeal handed down a judgment which defines the scope of legal advice privilege more narrowly than may previously have been assumed to be the case.

In doing so, the Court of Appeal overturned the widely reported decision of Tomlinson J in the Commercial Court in Three Rivers District Council and Ors v The Governor and Company of the Bank of England (see Litigation e-bulletin – 10 February 2003).The Court of Appeal (the Master of the Rolls, Lord Phillips, and Lord Justices Longmore and Sedley) found that the material in question, which comprised documentation and internal memoranda prepared by employees, was not protected by legal advice privilege. Information from employees was held to stand in the same position as information from an independent agent or third party and was thus not protected by legal advice privilege. The Court of Appeal decision ([2003] EWCA Civ 474) limits legal advice privilege so that it only protects communications between the client itself and its legal advisers and evidence of the contents of such communications.

Background

These proceedings relate to the closure of the Bank of Credit and Commerce SA ("BCCI") in 1991. After the closure, a wide-ranging inquiry was undertaken by Lord Justice Bingham, in part to consider whether the action taken by the UK authorities in relation to BCCI had been appropriate and timely. Shortly after the inquiry was established, the Governor of the Bank of England ("the Bank") appointed three Bank officials to deal with all communications between the Bank and the inquiry. They became known as the Bingham Inquiry Unit ("BIU"). The claimants, liquidators and creditors of BCCI, subsequently issued these proceedings against the Bank. The primary claim is misfeasance in public office by officials of the Bank in their supervision of BCCI.

During the course of the proceedings, the Bank claimed legal advice privilege over a large number of documents which came into existence after BCCI was closed and before the Bank made its final submissions to the inquiry. The Bank accepted that it could not claim litigation privilege over the documents as the inquiry did not constitute adversarial proceedings. At first instance, the claimants applied for a declaration that legal advice privilege did not apply to those documents which were not actual communications between a solicitor and client.

First instance decision

Tomlinson J found in favour of the Bank and held that the material was covered by legal advice privilege which protected from production "an internal confidential document, not being a communication with a third party, which was produced or brought into existence with the dominant purpose that it or its contents be used to obtain legal advice". He considered that the principle underlying legal advice privilege is to preserve the confidentiality of the process by which legal advice is sought and obtained, rather than the confidentiality of distinct communications within that process.

The Judge found that the "real question" which arose was whether the Bank was correct to characterise the dominant purpose as being the obtaining of legal advice. He stated that the relevant test in legal advice privilege cases was whether a document prepared by either a solicitor or client fell within the scope of the retainer of the legal advisers. He found that the Bank had established, on somewhat unusual facts, that the material in question was prepared or commissioned pursuant to the retainer between the Bank and the legal advisers, and the object of that retainer was the giving of legal advice.

Court of Appeal decision

The claimants appealed to the Court of Appeal. On appeal, they sought disclosure of documents prepared by the Bank's employees or ex-employees, whether prepared for submission to or at the direction of the legal advisers or not, on the basis that they were no more than raw material on which the BIU would, thereafter, seek advice.

Lord Justice Longmore (giving the judgment of the court) stated that in the course of argument "a surprisingly wide divergence about the extent of legal advice privilege opened up". Both parties argued that the law was well settled in their favour by the end of the nineteenth century, and that the Court of Appeal was bound by that law which had not changed in substance for over a hundred years. The claimants submitted that it was only communications between solicitor and client, and evidence of the contents of such communications, that were privileged. The Bank submitted that, as a matter of general principle, any document prepared with the dominant purpose of obtaining the solicitor's advice upon it, came within the ambit of the privilege, whether or not it was actually communicated to the solicitor. The Court of Appeal therefore found it necessary to consider in some detail the nineteenth century authorities as well as more recent authorities, to establish the current extent of protection provided by legal advice privilege.

The Court of Appeal found that the nineteenth century authorities established that legal advice privilege could not be claimed for documents other than those passing between the client and his legal advisers and evidence of the contents of such communications. The Court of Appeal case of Anderson v Bank of British Columbia (1876) 2 Ch D 644 established that legal advice privilege does not extend to protect information obtained from an employee, which stands in the same position as information obtained from an independent agent or third party. Those documents do not, of themselves, attract privilege. Longmore LJ stated:

"It may, moreover, be a mere matter of chance whether a solicitor, in a legal advice privilege case, gets his information from an employee or an agent or other third party. It may also be problematical, in some cases, to decide whether any given individual is an employee or an agent and undesirable that the presence or absence of privilege should depend upon the answer."

The Court of Appeal accepted there may be "a modest extension of the principle" that documents, intended to be communicated between a solicitor and client but which were not in fact communicated, were still privileged. For example, if the sender of a communication died before it was actually sent to the legal adviser, or the document concerned had been lost, the privilege would still exist. However, this extension was not a foundation for the wider ambit of legal advice privilege which the Bank sought to maintain.

Dominant Purpose

The Court of Appeal then considered the twentieth century authorities and the extent to which they have extended the privilege. The House of Lords in Waugh v British Railways Board [1980] AC 521 had adopted the "dominant purpose" test of Chief Justice Barwick in the Australian case of Grant v Downs (1976) 135 CLR 674 in the following terms:

"…a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection."

However the Court of Appeal held that this principle, as approved by the House of Lords, was a statement made in the context of litigation privilege only, and did not relate to legal advice privilege. Longmore LJ stated there was no indication that the principle was intended to depart from the law as understood at the end of the nineteenth century. The Court of Appeal then considered subsequent authorities which have applied the dominant purpose test, the majority of which were also in the context of litigation privilege. One case which was potentially more relevant was Balabel v Air India [1988] CH 317 as it related to legal advice privilege. However the Court of Appeal found that this was not authority for extending legal advice privilege to documents supplied by employees for the purpose of being sent to the client's solicitor.

The Court of Appeal also rejected the statement of Rix J in The Sagheera [1997] 1 Lloyds Rep 160 (a case of litigation privilege), adopted by Tomlinson J in the court below, that in legal advice privilege, "the practical emphasis is upon the purpose of the retainer". The Court of Appeal doubted whether this shift of focus to the dominant purpose of the retainer could be "justified by reference to authority or principle in relation to documents which are not communications between client and legal adviser". The Court found that the remaining twentieth century cases did not take the position any further.

The appeal was therefore successful. The Court of Appeal concluded that privilege did not extend to any of the documentation or internal memoranda prepared by the Bank’s employees or ex-employees, including those intended to be sent to and in fact sent to the legal advisers, which must therefore now be disclosed (subject to any appeal).

In light of these conclusions, the Court of Appeal stated that it was unnecessary to express a view as to whether the dominant purpose of this documentation was the obtaining of legal advice. Nevertheless, the Court stated that the documents in question were "raw material" prepared for the dominant purpose of the Bank complying with its primary duty of putting relevant factual material before a government inquiry "in an orderly and attractive fashion", and not for the dominant purpose of taking legal advice upon the material. There was no distinction between material generated at an early stage of preparing submissions for the inquiry and material generated in response to requests from the inquiry.

Comment

The effect of this decision is that if litigation is not in prospect (and litigation does not include ‘non-adversarial’ proceedings such as the Bingham inquiry), then documents prepared by employees of a party to be sent to the party’s lawyers will not be protected by legal advice privilege, unless they actually amount to the party’s communications with its lawyers for the purpose of taking advice. Given that companies have to act through their employees, the decision means that a far wider range of documents will now potentially be disclosable.

The decision seems to have opened up a somewhat surprising distinction between documents prepared by employees and those prepared by the client. Questions will therefore arise as to who constitutes the client in a company, to determine which correspondence amounts to a client communication and which is an employee document. Presumably the chief executive officer, in-house lawyer or other senior person in the company who actually instructs the lawyers will be recognised as the client. If so, communications to the lawyers prepared by that person seeking advice will be privileged, but any notes or memoranda prepared by employees and then attached to the communications with the lawyers will not be privileged, even if they were prepared at the lawyers' request to assist with the giving of legal advice.

The decision appears to be contrary to recent trends. In R (on the application of Morgan Grenfell & Co Ltd) v Special Commissioner [2002] UKHL 21, the House of Lords referred to legal professional privilege as "a fundamental human right" and affirmed its importance as a corollary to the right to legal advice (see Litigation e-bulletin – 24 May 2002). The Court of Appeal justified restricting legal advice privilege in the absence of contemplated litigation on two grounds:

  1. The need for a client to make "a clean breast of it" to his legal adviser (to use the words of Sir George Jessel MR in Anderson) is paramount when litigation either exists or is contemplated. It is in the interests of the State and taxpayers that legal advisers should be able to encourage strong cases and discourage weak cases but it is "by no means clear that, in the absence of contemplated litigation, there is any temptation for the client not to offer a clean breast to his legal adviser".
  2. It is in the public interest that the courts should, if possible, come to correct judgments on the basis of all relevant material. Although legal advice privilege should prevail to the appropriate extent (and the Court of Appeal here referred to the Morgan Grenfell case), as it is a privilege possessed only in relation to legal advisers and no other profession, it is important that it be confined to its proper limits. The Court of Appeal considered it was not open to them on the authorities to extend the privilege, even if they thought they should.

We understand that the Bank is considering an appeal to the House of Lords. (Leave to appeal was refused by the Court of Appeal so must be obtained from the Lords directly.) Unless the decision is overturned, companies and other bodies acting through their employees will need to take care when seeking reports, memoranda or other documentation from their employees for the purposes of taking legal advice where litigation is not in prospect.

Article by Julian Copeman and Kate Hurford

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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