UK: Legal Advice Privilege – Who is the “Client”?

Last Updated: 4 August 2003

Up till now solicitors and their clients have taken for granted the relatively wide scope of "legal advice privilege" protecting communications between solicitor and client for the purposes of giving and receiving legal advice. However, the Court of Appeal’s recent decision in Three Rivers District Council and Others v The Governor and Company of the Bank of England appears to have narrowed the scope of this privilege.

The decision is somewhat contrary to the recent trend where legal professional privilege has been referred to by the Court as "a fundamental human right", and will be of particular concern to those preparing responses to "non-adversarial" regulatory inquiries.

LEGAL PROFESSIONAL PRIVILEGE

There are two categories of legal professional privilege:

  • "legal advice privilege" protects confidential communications between solicitor and client for the purposes of giving or receiving legal advice. Documents sent to or from an independent third party are not covered. Legal advice privilege is not dependent on whether litigation is contemplated or ongoing; and
  • by contrast, "litigation privilege" applies only where litigation or other adversarial proceedings are contemplated, or ongoing. It is wider in scope than legal advice privilege and protects confidential communications between solicitor, client and an independent third party where the dominant purpose of the communication is the litigation in question.

THE DECISION

The Three Rivers case arose from the complex litigation between the liquidators of BCCI and the Bank of England ("the Bank"). In 1991, following the collapse of BCCI, the government set up the Bingham Inquiry ("the Inquiry") to investigate the Bank’s supervision of BCCI. Three Bank officials known as the Bingham Inquiry Unit ("BIU") were appointed as the internal body at the Bank to deal with all communications with the Inquiry, and also with the Bank’s solicitors in relation to the Inquiry.

In the Three Rivers case the liquidators of BCCI sought disclosure from the Bank of certain documents prepared by the Bank’s employees and ex-employees that were produced at the time of the Bingham Inquiry, falling within the following categories:

  • documents prepared by Bank employees, who were not part of the Bank’s BIU, that were intended to be sent to the Bank’s solicitors (ie. prepared with the dominant purpose of obtaining legal advice), and which were in fact sent to the Bank’s solicitors;
  • documents prepared by Bank employees, who were not part of the Bank’s BIU, with the dominant purpose of the Bank obtaining legal advice but which were not actually sent to the Bank’s solicitors (although their effect may have been incorporated into documents which were sent to the solicitors);
  • documents prepared by Bank employees, who were not part of the Bank’s BIU, without the dominant purpose of obtaining legal advice but which were sent to the Bank’s solicitors; and
  • documents in the above three categories which were prepared by former employees of the Bank (not part of the Bank’s BIU).

The Bank could not claim litigation privilege because the Inquiry did not constitute adversarial proceedings. The Bank therefore had to rely on legal advice privilege to resist disclosure. The Bank’s claim for legal advice privilege in relation to these categories was upheld at first instance. It is fair to say that this probably reflected most lawyers’ understanding of the scope of legal advice privilege prior to the Three Rivers case.

However, the Court of Appeal decided that these documents were not covered by legal advice privilege. The key finding of the Court, establishing new principles to be applied in this area, was that "the client" for the purposes of the scope of legal advice privilege can be narrower than the client organisation as a whole, and that information from "non client" employees should be viewed in the same way as information from an independent third party or agent, and will not be protected by legal advice privilege.

PRACTICAL IMPLICATIONS

The Three Rivers case does not change the scope of litigation privilege. The most significant impact of this case is likely to be in relation to "non-adversarial" proceedings, where litigation privilege does not arise (although, unhelpfully, there is no precise legal definition of the distinction between "adversarial" and "non-adversarial" proceedings). Given that companies have to act through their employees, the decision means that a far wider range of documents will now potentially be disclosable both to an inquiry and in any later legal proceedings relating to the subject-matter of the inquiry.

The Three Rivers case should be of concern to those subject to inquiry or investigation by, for instance:

  • the Financial Services Authority,
  • the Inland Revenue,
  • the Department of Trade and Industry, and
  • the Serious Fraud Office,

especially where the inquiry is more likely to be viewed as "fact-finding" and therefore "non-adversarial", for example where the respondent is in the position of a "witness" for the investigation as opposed to being the subject of the investigation. There is a statutory right to privilege in relation to investigations by the above bodies (as defined in the relevant statutes), but these definitions are now subject to arguments that they should be interpreted differently in the light of the Three Rivers case. In the case of invesigations by professional bodies such as the Law Society or ICAEW, or ad hoc inquiries, there may not even be this level of protection.

In addition, it is not unusual for inquiries or investigations by regulatory bodies, or government appointed inquiries to investigate major corporate or banking failures, to be followed by related legal proceedings and the concern is that a far wider range of documents – relating to the inquiry or investigation – will now be disclosable in any such legal proceedings.

After Three Rivers, those subject to inquiry or investigation will wish to exercise particular care in the creation of documentation which might be disclosable. Previously, views addressed to the legal adviser would be viewed as privileged. Now they might not be. That is a concern if, for instance, those views are based on incomplete information, or do not reflect the best position of the party concerned.

A number of steps can be taken in the light of the Three Rivers case:

  • It would be wise to identify the nature of the proceedings at an early stage (although this is not straightforward because of the lack of a clear distinction between "adversarial" and "non-adversarial" proceedings). If the proceedings are or may be viewed as "non-adversarial" then extra care should be exercised.
  • The definition of "client" is critical to the precise scope of legal advice privilege. The Court of Appeal did not give guidance as to who will be viewed as "the client" (it did not have to consider this because the position in the Three Rivers case was straightforward, ie. a separate committee, the BIU, had been formed to deal with the legal advisers and was naturally "the client"). One option is to identify at the outset of the proceedings a committee of all the individuals within the client organisation who will be communicating with the legal advisers and preparing documentation in relation to the proceedings, and designate this as "the client". In addition to the legal team, this would tend to be those who were involved in the activity being investigated, together with the management involved since.
    Alternatively, it might prove beneficial in not defining the client so that the Court is faced with the difficulty, which it did not face in the Three Rivers case, of identifying a limit to the scope of "the client". It remains to be seen what the Court’s approach will be in defining "the client" in particular circumstances.
  • Ultimately, the best approach is to try to ensure that documents (especially those recording analysis and views relating to the subject of the inquiry) are, to the extent possible, produced only by the core team who would naturally be viewed as "the client" because they have most contact with the legal adviser, or by the legal adviser itself.

The Three Rivers decision has attracted considerable interest and many commentators thought it would be the subject of an appeal to the House of Lords. However, we understand the House of Lords recently refused leave to appeal and the decision therefore stands.

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

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