The Court of Appeal has issued another important ruling on the law on legal advice privilege by overturning the decision of the Upper Tribunal (Tax and Chancery) in Garvin Trustees Limited v The Pensions Regulator [2015] Pens L.R. 1. This judgment will be welcomed by lawyers in general as it confirms that privilege never dies. Furthermore, it provides clear guidance on what happens to privileged communications between a company and its lawyers in the event that the company ceases to exist. It also provides some helpful guidance on what steps it is reasonable and appropriate for a law firm to take to protect a former client's privilege.

In brief, the Court of Appeal overruled Garvin, where Herrington J had held that privilege belonging to a company ceased to exist following dissolution and the expiration of the time period to restore the company to the register.

Background

This case came before the Court of Appeal because a group of investors in a scheme marketed by a Cypriot company, Anabus Holdings Ltd ("Anabus"), requested disclosure of documents belonging to Anabus held by a law firm, Dentons Europe LLP ("Dentons"), on the basis that Anabus had been dissolved and, therefore, could no longer assert privilege: meaning that such privilege had ceased to exist.

At common law, the interests of a dissolved company pass to the Crown as bona vacantia. Accordingly, the investors also advanced an alternative argument that, to the extent that the dissolved company's privilege had passed to the Crown as bona vacantia, the effect of a formal disclaimer by the Crown was to extinguish the privilege.

Unsurprisingly, the Garvin decision was of concern because it undermined what lawyers had long understood to be the sacred status of communications passing between a lawyer and his or her client. Readers will be familiar with R v Derby Magistrates Court ex p B [1996] 1 AC 487 where Lord Taylor stated that "a man must be able to consult his lawyer in confidence, since otherwise he might hold back half the truth. The client must be sure that what he tells his lawyer in confidence will never be revealed without his consent."

However, Garvin created a dilemma for lawyers who on the one hand are duty bound to protect privilege belonging to their clients and former clients and on the other hand have to respond to requests for disclosure from third parties with legitimate interests in those documents, in circumstances where, for example, the former clients and/or their successors in title are no longer contactable. In respect of the disclosure request by the investors, Dentons had received no response to its requests for permission to waive privilege on behalf of Anabus.

The Court of Appeal was quick to recognise this dilemma and we welcome its clear and practical guidance on this important issue. The decision clarifies unequivocally that privilege is not lost following the dissolution of a company by emphasising the absolute nature of privilege. In doing so, the Court referred to Three Rivers DC v Governor and Company of the Bank of England (No 6) [2004] UKHL 48, [2005] 1 AC 610 where Lord Scott stated that: "if a communication or document qualifies for legal professional privilege, the privilege is absolute. It cannot be overridden by some supposedly greater public interest. It can be waived by the person, the client, entitled to it and it can be overridden by statute... but it is otherwise absolute."

Against that background, the Court explained that once the client ceases to exist, the only remaining question is whether there is anyone who has the right to waive privilege on the client's behalf and, absent such waiver, the privilege abides.

The Court of Appeal also confirmed that the question of whether or not the right to waive privilege passed to the Crown as bona vacantia was of no significance. Even if it did, the Court held that the terms of the Crown's disclaimer could not be construed as a waiver of privilege.

The role of lawyers in asserting privilege

In agreeing with the steps undertaken by Dentons, the Court of Appeal also endorsed the long held position that it was the role of a lawyer to assert privilege on behalf of his or her clients or former clients by referring to Nationwide Building Society v Various Solicitors [1999] P.N.L.R. 52 where Blackburne J held that the lawyer's mouth was "shut forever" whether or not the client had any recognisable interest in continuing to assert privilege in the confidential communications.

The legal profession will no doubt welcome the certainty that this judgment provides. The Court held that Dentons had correctly concluded that, absent a waiver of privilege, which it had been unable to obtain, it had no option but to protect its former client's privilege by opposing the investors' disclosure application, and that it was reasonable for Dentons to incur its own costs in engaging solicitors and counsel to attend Court to protect its former client's privilege.

The law firm's entitlement to recover its costs

Notwithstanding the outcome of the disclosure application, the investors argued that they should not have to pay Dentons' costs of attending Court to oppose the application on the basis that Dentons should have done no more than assert privilege on behalf of Anabus and then left the matter to the Court to determine. However, having established that it was a lawyer's duty to assert privilege on behalf of its client, the Court of Appeal held that "If, in the course of fulfilling that duty, they incur costs (including costs in resisting an application for disclosure), they are doing no more than fulfilling that duty." The Court acknowledged that there were circumstances in which a person would be unwilling to release information without a court order and leaves the matter to the Court to determine the issue, without defending the application. However, it stated that was a matter of choice. Lewison LJ concluded: "I do not say that solicitors must always participate in contested proceedings for disclosure; merely that they may do so without overstepping the limits of their duty." Accordingly, the Court made a costs order in Dentons' favour.

Conclusion

In the light of the findings and comments made in this judgment, the question for lawyers faced with a disclosure application from a third party is whether they can properly discharge their professional obligation to protect privilege without actively opposing an application. It would appear that law firms can rest easy that they are unlikely to be ordered to pay the applicant's costs if they take steps to uphold privilege. However, ought they to be concluding that they should incur the expense of appearing at a hearing or is it sufficient to set out their position in writing? Each case will, of course, turn on its own facts and the Court of Appeal has not been prescriptive in its comments. However, the Court has said that lawyers should take steps to protect privilege and has further agreed that it was reasonable and appropriate for Dentons to instruct solicitors and counsel, notwithstanding that there was no client available to pay those costs.

In the light of the Court of Appeal's findings and comments, it is our conclusion that should a law firm fail actively to protect privilege because it did not want to expose itself to potentially irrecoverable costs (or otherwise), it could face criticism and possible sanction either at the behest of its client (or former client), a third party or the Solicitors Regulation Authority, whose truncated Principles (effective from 25 November 2019) do not reduce the obligation to: act in such a way to uphold the rule of law and the proper administration of justice; uphold public trust and confidence in the solicitors' profession; and act in the best interest of each client.

Care should therefore be taken to manage the firm's risks by ensuring that a consistent approach is taken within your firm, financial concerns are not allowed to impact on the decision and that the firm's Risk Team and/or General Counsel's Office are always involved, and at an early stage.

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.