Corporate Clips

Legal professional privilege: three rivers - after the flood

July 2004

Lawyers (whether in private practice or in-house) and their clients can fall into the trap of taking for granted the existence of legal professional privilege (in the USA, attorney-client privilege). The privilege, in essence, is the right of a client to withhold disclosure of the contents of his client-lawyer communications. In two recent cases the Court of Appeal has examined the scope of legal professional privilege, and reached decisions that some commentators view as an erosion of this right. To bring things right up to date: one of these cases - Three Rivers (summarised below) has been appealed to the House of Lords, the final appellate tribunal in the UK, where the hearing finishes on 29 July with judgment expected in November.

A cornerstone of the legal system . Legal profession privilege allows clients to "unburden themselves without reserve"[i] upon their legal advisors without fear of their confidences being breached. Indeed, the courts have considered it a fundamental human right on which the administration of justice as a whole rests. Without it, said Lord Brougham, "a man would not venture to consult [a lawyer].and would be thrown upon his own legal resources"[ii] Legal professional privilege takes two forms: litigation privilege and legal advice privilege.

Two distinct privileges. Litigation privilege attaches to confidential communications between a client and his lawyer (or between one of them and a third party) where the dominant purpose of the communication is obtaining legal advice, or collecting evidence, in relation to litigation, where that litigation already exists or is in reasonable prospect.

Legal advice privilege attaches to confidential communications between a client and his lawyer (but not third parties) which are made for the dominant purpose of obtaining legal advice.

Clearly, litigation privilege is the broader of the two in that it may afford protection to communications with third parties. The Court of Appeal has recently considered the scope of both these forms of privilege: in the Three Rivers decisions it examined the boundaries of legal advice privilege, particularly regarding the identity of the 'client' and the definition of 'legal advice'; and in the USA v Phillip Morris decision it considered the circumstances in which there would be a reasonable prospect of litigation, such that litigation privilege would attach.

Case background and summaries

Three Rivers. The Bank of England's (Bank) role as supervisor was examined by Lord Bingham's inquiry into the collapse of BCCI. The Bank established an internal team of three to work with the inquiry, and take such external legal advice as necessary. The team was referred to as the Bingham Inquiry Unit (BIU).

The Three Rivers litigation was brought against the Bank by the BCCI liquidators, who sought disclosure of communications generated by the BIU for the inquiry. The Bank resisted disclosure on the grounds of legal advice privilege. (Both parties agreed the inquiry was non-adversarial, and thus accepted litigation privilege could not attach).

Three Rivers No.5 [iii] primarily addressed the question of who qualifies as a client in the client-lawyer relationship.

The liquidators accepted that all communications between the BIU and their solicitors attracted legal advice privilege, but challenged the Bank's attempt to extend this protection to documents prepared by Bank employees outside the BIU.

The Court held that, on the facts of the case, the client was the BIU and not the Bank itself.

Legal advice privilege was not therefore available for documents prepared by employees or ex-employees of the Bank who assisted the BIU in gathering information but did not liaise with external lawyers. This was so, regardless of whether or not the documents were prepared for the purpose of obtaining legal advice. The Court iterated this point by stating that even a memorandum from the Governor himself might be excluded as "the BIU is the client rather than any single officer however eminent he may be."

Three Rivers No. 10 [iv] asked what constitutes legal advice in the context of legal advice privilege.

After success in No.5, the liquidators sought to further attenuate the scope of privilege granted to the BIU documentation. Having originally conceded that all communications between the BIU and their solicitors were privileged, they now argued that, even within the confines of a direct client-lawyer relationship, only those documents which came into existence for the purpose of obtaining legal advice were actually privileged.

The Court agreed and held that privilege will only arise where the primary object of the client-lawyer relationship was to obtain assistance that required knowledge of the law, i.e. for the purpose of obtaining advice or assistance in relation to rights and liabilities and not, for instance, presentations before a tribunal such as the Bingham inquiry. Where this test was satisfied broad protection would be given to communications passing between lawyer and client in the course of that relationship.

USA v Philip Morris & others [v] The US Govt. alleged that the defendant tobacco companies had engaged in an unlawful enterprise to deceive and defraud the American public about the health risks of smoking and about their knowledge and attitude towards them. The defendants, including the British American Tobacco group (BAT), were alleged to have suppressed information, by routing communications through their lawyers in an attempt to attract legal professional privilege.

The USA sought, via a letter of request, to gain disclosure of communications between a subsidiary of BAT and their solicitor, who advised them over the period of a nine year retainer. BAT argued both litigation and legal advice privilege attached to these communications.

Significantly, the Court held:

The test for litigation protection privilege - that litigation be 'reasonably in prospect' - is rigorous: there must be a 'real likelihood of litigation'. A 'mere' or 'distinct' possibility, or a 'general apprehension of future litigation' would not suffice.
Applying the Three Rivers cases, it is too simplistic to refer to the dominant purpose of a retainer as a whole to see whether legal advice privilege attaches. Each part of a lawyer's duties within the retainer is subject to the dominant purpose test, and not just the retainer itself .

What steps can be taken? Both cases were decided on their facts, and neither provides clear guidance as to the steps companies and their lawyers should take to ensure communications are privileged. The following points, however, should be taken note of:

Legal advice privilege:

On sensitive issues, create a specific group of employees who will constitute the client, and do so as early as possible. Common sense dictates that employees nominated should be those with factual knowledge of and familiarity with the issue.
Limit communications and document creation to this group. Exclude other employees, and observe the practice of marking documents with "Legally privileged and prepared in the context of lawyer/client advice. To retain privilege do not forward or otherwise distribute"
Documents generated should not contain purely commercial advice e.g. advice on the presentation of evidence in non-adversarial proceedings, or advice on matters such as storing, transporting and collating documents. If this is unavoidable, mingle the commercial advice with advice on legal rights and obligations where possible.

Litigation privilege:

If the existence of litigation has not been established, presume that only legal advice privilege may be available, and that communications with third parties will not be privileged.
Inquiries and other information-gathering exercises will generally be regarded as non-adversarial proceedings. This may include investigations by the Financial Services Authority, or the Department of Trade and Industry.
Even adversarial proceedings, such as the letter of request procedure, and similar third party disclosure requests, may not attract litigation privilege.

Three Rivers - before and after. Prior to the Three Rivers cases, the 'progressive' view on legal advice privilege was that it extended to all communications between a client and lawyer on matters within the normal course of business of their dealings, even if they did not contain legal advice. This view, in keeping with the expansion of a lawyer's role to business adviser as well as lawyer, was based on the decision in Balabel [vi]. It held that "there will be a continuum of communication and meetings between the solicitor and client. Where information is passed by the solicitor or client to the other as part of the continuum aimed at keeping both informed so that advice may be sought and given as required, privilege will attach. Moreover, legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context."

The Court in Three Rivers denied the claim that privilege had expanded in parallel with the growing role of a lawyer, taking the view it is limited to communications with the dominant purpose of obtaining legal advice. Moreover, it concluded that whilst the justification for litigation privilege is easily understood, "it is not easy to see why communications with a solicitor should be privileged...where litigation is not anticipated. It is perhaps time for legal advice privilege to receive a further review".

Whether these cases amount to an erosion, or simply a confirmation, of the law depends on whether the reader held the progressive view initially. Either way, the boundaries of privilege are clearer and clients and their lawyers should be put on notice accordingly.

Three Rivers - the House of Lords

Update: the House of Lords has now overturned the Court of Appeal's judgment in the Three Rivers case. The judgment on the 29th July 2004, which was not anticipated until November, came at the end of a four day hearing. Testimony was heard from the Law Society (the regulatory body for solicitors in the UK) and the Attorney General, who both took the unusual step of intervening in the long running case. The Law Lords decided to announce their decision immediately because of the importance of the issue. No reasons have been given at this stage, and it is still unknown as to which parts of the Court of Appeal's decision will be affected. Full judgment is expected in October.

[1] Ventouris v Mountain [1991] 3 All ER 472, Bingham LJ

[2] Greenough v Gaskell (1833) 1 My & K 98

[3] Three Rivers Council and others v Governor and Company of the Bank of England [2002] EWHC 2730 QBD, 13 Dec 2002 ; ditto [2003] EWCA civ 474 CA, 3 Apr 2003

[4] Three Rivers Council and others v Governor and Company of the Bank of England [2003] EWHC 2565 QBD, 4 Nov 2003 ; ditto [2004] EWCA civ 218 CA, 1 Mar 2004

[5] [2004] EWCA civ 330

[6] Balabel v Air India [1988] Ch 317