UK: How To Avoid… Losing Privilege And Confidentiality

Last Updated: 20 May 2013
Article by Michael Axe

In the latest in our series of articles on "How to avoid..." common legal problems, Michael Axe summarises some of the steps that you can take to ensure that your confidential and privileged communications remain protected from disclosure in legal proceedings.

Key Points to Remember:

How to Avoid... Losing privilege and confidentiality:

  1. Ensure settlement negotiations are covered by Without Prejudice privilege;
  2. Be aware of the exceptions to Without Prejudice privilege;
  3. Protect confidentiality in mediations;
  4. Ensure Legal Advice Privilege is obtained;
  5. Ensure Litigation Privilege is obtained.

Many people who become involved in legal disputes fear that confidential comments made "behind closed doors", or concessions offered in the context of attempting to reach a settlement with the other side, may be used against them once the matter reaches court.  This article looks at some simple steps that you can take to help ensure that this does not happen.

1 – Ensure settlement negotiations are covered by Without Prejudice privilege

Without Prejudice (WP) privilege should, generally speaking, cover written and verbal communications between parties that represent a genuine attempt to settle a legal dispute.  The general rule, that WP communications are not admissible in Court as evidence, was developed as a matter of public policy to ensure that parties were able to negotiate freely during settlement discussions, without fearing that anything they say could then be used against them in Court by the other side if the negotiations broke down.

However, it is not always entirely clear where WP privilege begins and ends; for example, while an actual settlement offer would normally be covered by WP privilege, it is not always clear whether an offer to meet to discuss settlement would be covered by WP privilege.  For this reason, it is always advisable to clearly label any WP letters accordingly, and to make it clear during any meetings or telephone conversations if you want to speak on a WP basis.

2 – Be aware of the exceptions to Without Prejudice privilege

As with every general rule, there are exceptions where WP communications might need to be disclosed to the Court.  Probably the most common exception is that WP communications can be disclosed to the Court if a dispute arises over whether a binding settlement agreement had been concluded between the parties.

This exception was historically applied very narrowly by the Courts, but in 2010, the Supreme Court confirmed that WP communications could also be disclosed as evidence in relation to a dispute over the interpretation of a settlement agreement, not just its existence.  Although this decision was undoubtedly an extension of the existing exceptions to WP privilege, it is still a very narrow exception which is unlikely to significantly undermine the protection afforded to settlement discussions by WP privilege.  Nevertheless, parties should be careful in future not to include any "confidential" information in settlement communications which they would not want to be disclosed to the Court in the event that a settlement is concluded, but then a dispute arises over the existence or interpretation of that settlement agreement.

3 – Protect confidentiality in mediations

Mediation is an increasingly popular method for resolving legal disputes on a cost effective basis, and arguably the core principle behind mediation is that the process is confidential, allowing the parties to negotiate freely without fear that any comments made, special documents produced or concessions granted in the context of attempting to reach a settlement at the mediation will later be used against them in Court proceedings.  Mediations will normally not only be covered by WP privilege, but they will also be governed by confidentiality provisions in the Mediation Agreement itself, which will bind the independent Mediator as well as the parties themselves.

However, in exceptional circumstances, it can be in the interests of justice for the Courts to order the disclosure of confidential information.  For example, in the case of Farm Assist Limited (In Administration) v The Secretary of State for Environment, Food and Rural Affairs (No.2), the Court ordered the independent Mediator to give witness evidence in relation to allegations that the settlement agreement concluded at the Mediation should be set aside due to serious misconduct during the Mediation by one of the parties.  The question of when it will be in the interests of justice to "override" the confidentiality provisions in a Mediation Agreement is, unfortunately, not an easy one to answer and will depend on the facts of each case.

4 – Ensure Legal Advice Privilege is obtained

Legal Advice Privilege (LAP) is another form of privilege/confidentiality that covers communications between clients and their lawyers relating to the seeking or giving of legal advice, which provides clients with an absolute right to refuse to disclose those communications in legal proceedings.  However, LAP will normally only apply to legal advice provided by lawyers, and not to legal advice provided by any other parties.

This was confirmed by the Supreme Court in the 2013 case of R (Prudential plc and another) v Special Commissioner of Income Tax, which rejected arguments put forward by Prudential and the Institute of Chartered Accountants of England and Wales that it should be the nature of the legal advice that determines whether it is covered by LAP, not the status of the person giving the advice.  The Supreme Court ruled that the clearly defined and understood principle of LAP was that it only applies to advice provided by qualified members of the legal profession, and stated that only Parliament could change the existing law on such a fundamental level.

As well as considering the status of the person providing the legal advice, it is also important to consider who is receiving the legal advice in question.  In the so-called Three Rivers (No 5) case, the House of Lords stated that LAP will only apply to advice provided by a company's lawyers to the people at the company who are specifically charged with the seeking and receiving of legal advice.  Other people at the company who are outside of that small, defined group may not be covered by LAP if the Courts consider that they are not to be regarded as the lawyers' "client" for the purposes of the advice in question.  It is therefore recommended that legal advice should not be "over circulated" within a company or similar organisation, and that the personnel responsible for the dealing with the lawyers on a day-to-day basis are clearly identified.

In a wider context, the European Court of Justice (ECJ) has also confirmed that Legal Profession Privilege (including LAP) does not apply to advice provided by in-house lawyers to the companies they work for, in relation to competition law matters.  This decision, coupled with the ECJ's recent decision that in-house lawyers cannot represent their companies in the courts of the EU, has significantly limited the role and effectiveness of in-house lawyers in the European Courts.

5 - Ensure Litigation Privilege is obtained

Litigation Privilege is another form of Legal Profession Privilege (alongside Legal Advice Privilege), which can apply to confidential communications which relate to existing, pending or reasonably contemplated litigation.  However, Litigation Privilege will normally only cover communications passing between the client and its lawyer, or between the lawyer or client and a third party (such as accountants or other professional advisors) for the purposes of the giving/receiving of advice or the gathering evidence in relation to litigation.  There are also several "traps" that the unwary can fall into which may invalidate potential Litigation Privilege, and so it is important to seek legal advice as soon as litigation is "reasonably contemplated" in order to invoke Litigation Privilege as far as possible.

Summary

As the above illustrates, there are several different bases upon which documents may be considered to be confidential and/or privileged from disclosure, and by taking the steps outlined above, it should be possible to maximise your chances of preserving the confidentiality and privilege in those communications.  As ever, a careful consideration of the exceptions to the basic rules will be essential.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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