Legal Briefing

Privilege: recent case law provides guidance on scope

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Dispute resolution | 01 February 2011

The legal concept of privilege underpins much of the daily interaction between lawyers and clients because it allows a client uninhibited access to a lawyer’s professional advice, free from concern that confidential communications will be disclosed in any subsequent litigation. This article focuses on three recent cases that have provided clarification on the scope of both legal professional privilege and the smaller sub-set of joint privilege. This article concludes with observations on practical issues arising from the cases and suggests ways in which businesses should structure their communications to ensure that they maximise their ability to claim privilege.

LEGAL PROFESSIONAL PRIVILEGE

Legal professional privilege (LPP) is split into the following two types:

  1. legal advice privilege applies to confidential communications that pass between client and lawyer, and which have come into existence for the purpose of giving or receiving legal advice; and
  2. litigation privilege applies to confidential communications that pass between lawyer and client, or between either the lawyer or the client and a third party. Such communications must be made for the dominant purpose of litigation, which must be pending, reasonably contemplated or existing.

Traditionally, LPP has applied to advice given by solicitors and barristers (regardless of the jurisdiction in which they were trained), as well as trainees, paralegals and legal executives who are acting under the supervision of a qualified lawyer. However, professionals other than lawyers (eg accountants, trade mark and patent attorneys) often provide advice on legal issues. This raises the question of whether the limits of LPP are defined by reference to the nature of the advice being given or the identity of the person giving the advice. This issue arose in Prudential (see below) in the context of tax advice given by accountants.

Prudential plc & anor, R (on the application of) v Special Commissioner of Income Tax & ors [2010]

This was an appeal from a judgment of Charles J in the High Court in which he had refused to overturn an order of the Special Commissioner requiring Prudential to disclose advice given by PricewaterhouseCoopers (PwC) on a tax avoidance scheme. Prudential argued that PwC’s advice should be protected from disclosure by LPP on the basis that advice about fiscal liabilities often involves a consideration of, and advice about, the relevant law. In a situation where lawyers and accountants are giving advice on the same issues, there was no reason for distinguishing between the two types of professional adviser.

Having heard submissions from not only the parties to the dispute but also from the Law Society, the Bar Council and the Institute of Chartered Accountants, the Court of Appeal unanimously rejected the appeal. Lloyd LJ, who gave the leading judgment, identified three main reasons for this decision:

  1. The Court of Appeal was bound by its own previous decision in Wilden Pump Engineering Co v Fusfeld [1985] , in which it was held that LPP only applies to advice given by lawyers.
  2. Any alteration to the scope of LPP should be brought about by Parliament. Lloyd LJ went on to note that Parliament had not significantly altered the scope of LPP despite numerous opportunities to do so over the past 40 years. He considered this to be no oversight or mistake on the part of Parliament.
  3. Lloyd LJ also underlined the importance of certainty and said that drawing the line at legal professionals provided the requisite certainty. Conversely, an extension to other professionals, ‘without statutory help or definition’ would result in the scope of the rule being ‘lamentably uncertain’.

It is worth noting that Lloyd LJ said that, while he agreed with almost everything in the first instance judgment of Charles J, he disagreed with Charles J’s suggestion that the playing field between accountants and lawyers should be levelled by restricting the scope of LPP as it applies to advice given by lawyers, rather than expanding its scope to encompass advice on legal issues given by other professionals. Although Lloyd LJ did not elaborate on this view, or give any reasons for it, this is a clear judicial statement that clients’ right to claim LPP in all legal advice given by lawyers should be preserved.

Prudential has applied to the Supreme Court for permission to appeal. At the time of writing, it is not yet known whether permission will be granted. Given the importance of this issue, it may be that the Supreme Court will decide that it should provide definitive guidance on it. However, if the Supreme Court does overturn the Court of Appeal’s decision, this will be a significant departure from earlier judgments of the lower courts in cases such as Wilden Pump .

Akzo Nobel Chemicals and Akcros Chemicals v Commission & ors [2010]

Under English law, in-house lawyers enjoy the same protection as their external counterparts. However, this is not uniformly the position across the EU as some member states do not confer privileged status on advice given by in-house lawyers. In Akzo Nobel, the question was whether, as a matter of EU law, privilege attached to advice given by in-house lawyers in the context of an EU antitrust investigation.

The dispute began in February 2003 when the European Commission carried out antitrust raids at Akzo Nobel’s offices in Manchester. Officials at the raid confiscated documents including e-mail exchanges between non-legal employees and an in-house lawyer, which, Akzo Nobel argued, were confidential communications protected by LPP. The LPP claims were rejected by the Commission and the dispute went to the Court of First Instance (CFI), which is now known as the General Court. The CFI also dismissed Akzo Nobel’s arguments and consequently an appeal was lodged with the European Court of Justice (ECJ).

Akzo Nobel’s appeal to the ECJ was well supported from within the UK and also garnered support from numerous other European jurisdictions and legal bodies including the European Company Lawyers Association, the American Corporate Counsel Association and the International Bar Association.

On 14 September 2010, the ECJ handed down its judgment, affirming the decision of the CFI to apply the principle established in AM & S Europe Ltd v Commission of the European Communities [1982] , that communications between an in-house lawyer and other members of their employer’s staff were not protected by LPP. Agreeing with the opinion of Advocate General Kokott, which was published in April 2010, the ECJ took the view that, due to in-house lawyers’ economic dependence and close ties with the employer, they did not enjoy a level of professional independence comparable to that of an external lawyer. Furthermore, by taking up a position as an employee, an in-house lawyer was unable to ignore the commercial strategies of the employer and was therefore incapable of acting with total independence.

This decision does not affect the position under English law and in-house lawyers remain able to claim LPP in their advice in antitrust investigations by the Office of Fair Trading (OFT) or other regulators with concurrent powers (such as Ofcom and Ofgem), as well as in English civil proceedings. However, it may not be possible, at the time when advice is given, to say with any certainty whether the activities in question will fall solely within the jurisdiction of a member state or whether an EU antitrust investigation may ensue. Thus the only way for in-house lawyers to guarantee that written advice on competition issues is privileged will be for them to involve external counsel.

BBGP Managing General Partner Ltd & v Babcock & Brown Partners [2010]

The Babcock & Brown Group (B & B Group) established a co-investment fund that was structured as an English limited partnership (Global). BBGP Managing General Partner Ltd (General), a B & B Group company, was the general partner of Global and, as such, was responsible for the management of all partnership business. The investors in the fund, including several B & B Group companies, were limited partners in Global.

Disputes arose between the limited partners in Global and General. H, a director of General and employee of B & B Group, instructed Slaughter & May (S) on behalf of Global to advise, among other things, on whether Global could remove General for misconduct (thereby relieving Global of an obligation to pay a termination fee). In so doing, H was acting in breach of their fiduciary duties to General.

General was subsequently removed as general partner of Global and steps were taken to transfer Global’s partnership records to a new general partner. As part of this process, S’s advice was discovered on B & B Group’s servers. The question arose as to whether Global was entitled to assert privilege in S’s advice or whether General and other B & B Group companies (and, if so, which ones) were entitled to copies of it. Norris J found as follows:

  1. The mere fact that the advice was stored on B & B Group’s servers did not mean that confidentiality had been lost in the advice such that Global could no longer assert privilege in it.
  2. The terms of the retainer with S made it clear that S was instructed to advise Global, acting through its agent, General. Therefore all partners in Global were entitled to copies of the advice, including General and the B & B Group limited partners.
  3. Numerous cases have established that a direct shareholder in a company is entitled to see privileged advice given to the company, in so far as the shareholder has a common interest in that advice. What was less clear before BBGP was whether a shareholder who obtains documents in this way can share these documents with its own shareholders. Norris J answered this question in the negative. In the absence of previous authority, he decided the issue on public policy grounds on the basis that there was no reason to extend the rule all the way up the chain of holding companies, notwithstanding the steady dilution of common interest. Therefore the direct shareholder of General was entitled to review the legal advice on matters where there was a common interest, but was not entitled to share that advice with other companies in B & B Group.
  4. Parties cannot claim privilege in documents that have been created for the purpose of effecting iniquity. This is known as the ‘iniquity principle’. H’s conduct, in (among other things) assisting the limited partners’ plans to remove General as general partner of Global, and failing to disclose the existence of those plans to General, was a breach of H’s fiduciary duties and amounted to sharp practice that was sufficient to bring the iniquity principle into play. Therefore Global could not assert privilege in the advice.

BBGP is an interesting example of the effect of the iniquity principle. Interestingly, the judge expressed the view that it was not relevant whether H intended to derive a personal benefit from their actions. Perhaps more important, however, is the finding that, although direct shareholders in a company are entitled to copies of privileged advice to the company, in so far as they have a common interest in that advice, they are not entitled to share that advice with their own shareholders.

CONCLUSIONS AND PRACTICAL STEPS

  • The Court of Appeal’s decision in Prudential confirms earlier decisions that LPP only applies to advice provided by lawyers and not to that provided by members of other professions. Except in EU antitrust investigations, this includes advice given by in-house lawyers.
  • However, it should be remembered that not all advice, even when provided by lawyers, will be protected by LPP. LPP only attaches to legal advice, and not to commercial advice. Legal advice is not confined to explaining the law; it includes advice as to what should prudently and sensibly be done in a relevant legal context. Therefore, where in-house counsel advises about rights, liabilities, obligations or remedies, that advice should be privileged. Similarly, privilege will attach to communications passed between an in-house lawyer and the internal client, aimed at keeping both informed so that legal advice may be sought and given as required. However, pure business, non-legal advice will not be privileged. For example, communications created for administrative, compliance or company secretarial purposes are unlikely to be privileged.
  • It is important to keep communications regarding business or administrative advice separate from communications regarding legal advice, which should be marked ‘confidential and privileged’ and, where practicable, filed separately. Where privileged and non-privileged advice is set out in the same document, there is a risk that the whole document will have to be disclosed.
  • The decision in Akzo Nobel was made in the context of EU antitrust proceedings. However, it is likely that the Commission and the European courts would adopt a similar approach if the issue of LPP were to arise in another area where the Commission has the power to request or seize documents. In-house lawyers should, therefore, watch out for any developments in the Commission’s powers. For example, it has been suggested that the Commission should have increased powers to conduct fraud investigations.
  • When giving advice on potentially sensitive competition issues, in-house lawyers should try to give that advice orally. Where written advice is required, it may be necessary to instruct external counsel. When outside lawyers are instructed, there should be direct lines of communication with them (ie they should not simply be copied into internal communications). Any advice provided by an external lawyer should be used internally in its complete form and without any amendments or additions. Any covering e-mail or summary from an internal source is unlikely to be covered by LPP in an EU antitrust investigation.
  • As a result of the decision in BBGP , in-house lawyers (especially those working for larger organisations with complex corporate structures) should be aware of the limits of joint privilege. Direct shareholders in a company are entitled to see advice in which they have a common interest but not to pass that advice to their own shareholders. A company can, of course, agree that privileged advice should be disseminated more widely but there will then be a risk that confidentiality, and therefore LPP, will be lost in the advice. Therefore, it is important to ensure that circulation of legal advice and privileged documents is limited as much as possible. If it is necessary to provide privileged documents to other group companies, this should only be provided once a confidentiality undertaking has been agreed. In the absence of a confidentiality agreement, common interest (as opposed to joint) privilege may apply. However, the law on common interest privilege remains uncertain and it is unwise to rely on it where this can be avoided.