UK: New UK Court Case On Legal Privilege: Three Rivers District Council & Others -V-Governor & Company Of The Bank Of England (Hl) (11/11/2004)

In 1991, the Bank of Credit and Commerce International ("BCCI") collapsed with a huge excess of liabilities over assets. One of the biggest scandals in UK banking, many questions needed to be answered. People turned to the Bank of England ("The Bank"), which under the Banking Acts of 1979 and 1987, has a statutory supervisory role with responsibilities and duties concerning the supervision of banks, including BCCI.

A government inquiry was set up into the BCCI collapse, headed by Lord Justice Bingham, to investigate the Bank’s conduct and role in the collapse. Given the Inquiry, the Bank set up an internal Unit ("BIU") made up of a number of bank officials, to co-ordinate the Bank’s response. The BIU instructed lawyers to act on its behalf and extensive advice was given by the lawyers to the BIU as to the Bank’s legal position and how best to present its evidence to the inquiry.

After the conclusion of the inquiry in October 1992, a number of depositors of BCCI ("the Claimants") commenced an action against the Bank, claiming damages for misfeasance in public office.

The appeal to the House of Lords concerned certain documents which the Bank was refusing to disclose on grounds of privilege. The House of Lords judgment is important as it clarifies the English common law position on what communications are covered by legal professional privilege.

Legal professional privilege has been described in one case as "a fundamental condition on which the administration of justice as a whole rests"; it is a key element to any lawyer-client relationship.

The modern law on legal professional privilege has developed in two strands: litigation privilege and, the more general, legal advice privilege; it was the latter which concerned their Lordships, although comments on the former were made by way of reference and clarification.

Litigation privilege covers documents created in respect of the seeking or giving of legal advice for the purposes of actual or contemplated legal proceedings – the rational being that in order to achieve the administration of justice, lawyers should have access to all relevant material from their client without fear that confidential communications will be available to the other side.

Litigation privilege extends beyond simply communications between the lawyer and his client. It covers communications between a lawyer or a lawyer’s client and a third party as well as any document which is brought into existence for the dominant purpose of being used in the litigation. It is not restricted to documents providing legal advice and includes, by way of example, papers passing between lawyers and potential witnesses.

Put simply, the test for whether a document is privileged pursuant to litigation privilege requires three conditions to be satisfied:-

1. litigation must be in progress or in contemplation;
2. the communications must have been made for the sole or dominant purpose of conducting that litigation;
3. the litigation must be adversarial, not investigative or inquisitorial.

The Court of Appeal had previously held that documents which were prepared for the BUI which related to "presentational" assistance – namely assistance in putting together relevant evidence to the Bingham Inquiry in the manner most favourable to the Bank’s position - were not covered by privilege as they were not strictly legal advice.

All parties, however, agreed that legal advice privilege covered:-

1. communications between clients and lawyers seeking or giving advice / assistance concerning the clients’ legal rights and obligations; and
2. communications between clients and lawyers seeking or giving advice / assistance concerning the clients’ public law rights, liabilities and obligations.

Their Lordships, therefore, had to determine whether or not the narrow interpretation of what was covered by legal advice privilege held by the Court of Appeal was correct in law and whether the distinction between documents prepared by solicitors giving legal advice and documents prepared by solicitors for ‘presentational’ purposes held water.

The rationale for the privilege was reaffirmed by the Court on public policy grounds, noting that:

In clarifying the scope of the privilege, reference was made to what could be properly called legal advice and it was held, agreeing with a 1988 decision, that:

Their Lordships also confirmed that the privilege, once established, is absolute – although it may be waived by statute, it vests in the client and cannot be otherwise waived without instructions.

Much of the time, therefore, it will be clear whether or not the privilege applies. However, in marginal cases, Lord Scott set out a two stage test to determine whether or not the privilege applied to a communication:-

1. Does the advice relate to rights, liabilities, obligations or remedies of the client either under private law or public law? If not, then the privilege does not apply. If yes, then:-
2. Is the occasion on which the communication takes place and is the purpose for which it takes place such as to make it reasonable to expect the privilege to apply?

This latter criterion is an objective one.

Applying this test to the ‘presentational’ materials which the Claimants wanted disclosed, the Lords held that they were prepared to enable the Bank to discharge its public law obligations and that the advice fell squarely within the policy reasons underlying legal advice privilege. The client was asking the lawyers to "put on legal spectacles when reading, considering and commenting" on the documents which had been prepared and the lawyers were, therefore, giving advice in a legal context.

The result of this decision is that most instances of advice given to a client by a lawyer will be covered by legal professional privilege. The test provides a sensible method of determining whether a communication attracts privilege. What will not be covered by the privilege is general commercial and business advice which is given by a solicitor when it has no legal context – for instance certain investment advice.

Only legal advice given to a client can fall within the scope of legal advice privilege, setting the privilege apart from litigation privilege. The definition of client is, therefore, of crucial significance. A prior Court of Appeal decision in this litigation provided that communications between lawyers and employees and former employees of the Bank (including drafts prepared by such a party but not sent) were not communications with the client and, therefore, could not be privileged.

The House of Lords, although recognising the problems that this decision created, did not deal with this issue and the previous Court of Appeal decision stands as good law. Corporations, unlike natural legal persons, can only act through their employees / officers and so will be faced, going forward, with difficult issues when considering who, within their organisation will be considered to be the lawyer’s client for the purposes of obtaining legal advice. Lord Scott acknowledged that the issue is "a difficult one with different views"; Baroness Hale found that "..there are particular difficulties in identifying ‘the client’ to whose communications privilege should attach in the case of a large organisation such as the Bank or a government department.". Only Lord Carswell was bold enough to hold that he would reserve his position on the correctness of the Court of Appeal’s decision.

If a narrow interpretation of the client is taken such that it does not cover all of the employees in a company, many communications with those clients may not be privileged and thus exempt from disclosure. As the law stands presently stands, a communication between an employee and his employer’s lawyer is, therefore, unlikely to be covered by legal advice privilege unless that employee is clearly the client for the purposes of the advice.

This element of the House of Lords’ findings is disappointing. Clients will have to be vigilant about who within their organisation corresponds with its lawyers and lawyers should seek to ensure that their advice is targeted to key decision making individuals to try to ensure that the advice remains privileged. It may well be worth trying to clearly define at the outset prior to the undertaking of any legal work - which individuals within the organisation are to represent the mind and will of the organisation and thus be identified as the "client" for privilege purposes.

To whom one should send advice within a client organisation is, therefore, a question which lawyers will need to think carefully about in order to try to protect communications which are intended, by their nature, to be privileged. It is possible that sending advice to a general body of employees may mean that any privilege which attracted to the document had been inadequately waived.