A storm in a teacup?
The Law of Privilege after Three Rivers

Who can obtain those file notes? And, those letters of advice? Privilege is not just important for litigation lawyers; it's at the heart of matters of tax law and asset protection. Peter Cherry considers issues of legal privilege.

Introduction

Most readers will barely remember the day when, in 1991, the regulators closed down the operations of the Bank of Credit and Commerce International (BCCI), but like the other major scandal of that era – Maxwell – the consequences of that day are still being felt like aftershocks to an earthquake.

A titanic struggle is unfolding at the Royal Courts of Justice between the Liquidators of BCCI and the Bank of England. At the heart of the case is the allegation that the Bank of England – as regulator – was guilty of misfeasance in public office.

While the political implications of the case are obvious, a rather more unexpected consequence of the case has been to shine a spotlight on a neglected backwater of the law – solicitor and client privilege. This has led to a challenge to much that has been taken for granted as to the ambit of privilege. The idea that a document is safe from disclosure and production because it passes between solicitor and client can no longer safely be held.

Privilege is at the heart of matters of tax law and asset protection. Both subjects are highly relevant to readers of ECA, therefore note should be taken of the current battle lines.

The development of the law

During the first half of the 19th century, the courts recognised that there were grounds for protecting from production in court communications passing between solicitor and client in relation to litigation. The purpose of the protection was to allow a client to consult his solicitor with complete frankness.

Initially the concept was restricted to litigation. However, in the second half of the 19th century, it was extended to cover all communications between solicitor and client, whether or not litigation was in progress or actively contemplated. This type of privilege has become known as ‘advice privilege’ in contrast to ‘litigation privilege’.

There remained, however, a significant difference between the scope of advice privilege and that of litigation privilege. Litigation privilege can cover correspondence between solicitors and witnesses and other third parties, and documents arising from the process of gathering evidence. Advice privilege, on the other hand, has never extended beyond communications passing between solicitor and client.

The concept of privilege in the Age of Human Rights

The law reflects the tension between two policy objectives. The first is to allow clients to be frank in putting their positions to their solicitors so that effective advice can be obtained.

The second is the need for courts to have available all relevant material in reaching decisions.

It is now clear that the courts regard solicitor-client privilege as having the protection of human rights legislation, invoking the right of privacy under Article 8 of the European Convention – see R (Morgan Grenfell & Co Limited) v Special Commissioners of Income Tax [2003] 1 A. C. 563; Foxley v United Kingdom (2003) 31 EHRR 637.

Whilst the ambit of privilege may be capable of statutory or common law modification, the concept itself is here to stay.

The issues raised by Three Rivers

The role of a solicitor has evolved considerably since the 19th century. The Three Rivers litigation has involved, for the first time, a consideration of whether all aspects of work within the retainer of a solicitor in modern times attract advice privilege.

Litigation privilege has not been an issue in this litigation. The House of Lords in Re L {1997} A.C. 16 held that litigation was “a creature of adversarial proceedings”. The Bingham Inquiry was clearly not an adversarial process. It was an inquisitorial process and so no question arose in Three Rivers of seeking to argue for litigation privilege. If any privilege attached to the bank’s documents, it had to be advice privilege.

The issues in Three Rivers developed in two stages. The bank had, when the appointment of the Bingham Inquiry into the collapse of BCCI was announced, set up an internal group to handle the its response to that inquiry, known as the Bingham Inquiry Unit (BIU).

The BIU liaised extensively with the bank’s solicitors in preparing materials for submission to the inquiry.

Initially, the claimants sought disclosure of materials prepared by employees or former employees of the bank in response to requests emanating from the BIU. Those documents were, in many cases, generated with a view to seeking legal advice on their content. At this stage, the claimants did not seek to argue that communications between the BIU and the bank’s solicitors might not be privileged.

The Court of Appeal – in Three Rivers (No.5) – decided that for the purposes of the Bingham Inquiry the bank’s solicitors’ client was the BIU, not a wider class encompassing employees and former employees of the bank. It followed that documents which did not constitute communications between the BIU and the bank’s solicitors were not privileged. The bank sought permission to appeal from the House of Lords, but this was refused.

The approach taken by the Court of Appeal in Three Rivers (No.5) encouraged the claimants to take a bolder line than they had previously argued. They now sought to claim that advice privilege did not apply to communications between the BIU and the bank’s solicitors. The basis of this claim was that the bank’s solicitors’ advice did not relate to the legal rights and obligations of the bank. Rather, it dealt with issues of presentation of evidence – placing the bank in the best possible light at the Inquiry.

The bank argued that their solicitors’ advice fell within the normal ambit of a solicitor’s retainer, and that restricting privilege purely to communications dealing purely with legal rights and obligations was unjustifiably restrictive.

Outcome in Court of Appeal

The Court of Appeal decided that advice privilege did not extend to all aspects of a solicitor’s retainer. In their view, it extended only to those communications the dominant purpose of which is giving or receiving advice in relation to legal rights and liabilities. The presence or absence of privilege must be considered on a document by document basis if necessary.

This ruling exposed every single solicitor’s file to potential production.

No longer could it be taken for granted that a letter by a solicitor to his client could never be produced in subsequent litigation. A litigant who asserted privilege could be made to justify that privilege, by reference to the narrow test laid down by the Court of Appeal, for each and every document. Only those documents that clearly related to advice on rights and liabilities would be safe.

This had the potential to hit the private client solicitor hard. Much advice is often given on a ‘man of affairs’ basis and reference to rights and liabilities may not be immediately apparent.

Lord Phillips M.R. concluded: “We have found this area of the law not merely difficult but unsatisfactory. The justification for litigation privilege is readily understood. Where, however, litigation is not anticipated it is not easy to see why communications with a solicitor should be privileged. Legal advice privilege attaches to matters such as the conveyance of real property or the drawing up of a will. It is not clear why it should. There would seem little reason to fear that, if privilege were not available in such circumstances, communications between solicitor and client would be inhibited.”

This threw down a gauntlet to non-contentious lawyers. The entire concept of advice privilege was seen as open to attack. As the bank appealed to the House of Lords, both the Law Society and the Bar Council took steps to intervene as interested parties in order to make submissions on the important issues raised.

House of Lords

The House of Lords has now heard an appeal on behalf of the bank. Their lordships were unanimous in rejecting the narrow approach to advice privilege adopted by the Court of Appeal.

Lord Scott of Foscote took the view that the concept of legal advice was not limited to private law rights and obligations, but also encompassed public law rights and obligations. In his view, the advice given to the bank by its solicitors in connection with the presentation of material to the Bingham Inquiry clearly touched on the bank’s public law position and was thus privileged. More generally, he adopted the approach taken by Taylor L.J. (as he then was) in the case of Balabel v Air India [1988] 1 Ch. 317 where he said (p330): “…legal advice is not confined to telling the client the law; it must include advice as to what should prudently be done in the relevant legal context”.

Baroness Hale of Richmond said on this point: “There will always be borderline cases in which it is difficult to decide whether there is or is not a ‘legal’ context. But much will depend upon whether it is one in which it is reasonable for the client to consult the special professional knowledge and skills of a lawyer, so that the lawyer will be able to give the client sound advice as to what he should do, and how to do it.”

Lord Carswell, commenting upon the doubts expressed in the Court of Appeal about the rationale for advice privilege, adopted the points raised on the hearing of the appeal by the Law Society, where they said: “In the course of giving instructions to draw a will, confidential information may be given about matrimonial or financial difficulties: about anticipated inheritance; about the parentage or adoption of children; about the perceived unsuitability of a former spouse to act as guardian; about the physical or mental health of the testator or spouse or other family member; about pensions, or businesses, or other assets. If the testator is to be free to supply the frank and full information necessary for the drafting of a will, he must be sure that what he says will remain confidential even though litigation is not ‘anticipated’.”

Similar comments were made in relation to family and tax lawyers. For his part, Lord Scott echoed these sentiments. This will give substantial comfort to most of ECA’s non-contentious lawyers.

Is this the last word?

The House of Lords judgment did not deal with two areas. First, it declined to review of the Court of Appeal decision in Three Rivers (No.5) which remains the law when determining who is the client for the purposes of privilege. Whenever a lawyer deals with a large organisation, he or she must have a clear understanding of who exactly the client is for the purpose of advice privilege, and should set up lines of communication accordingly. Clients will also need practical advice, for example, to reduce the risk of a carelessly forwarded email losing privilege.

Second, Lord Scott has laid down a marker in relation to litigation privilege, saying that the current distinction between adversarial and inquisitorial procedures should be reviewed in the light of the right to a fair trial under the Human Rights Act 1998, and in the light of the procedural changes effected by the Civil Procedure Rules 1998. This comment opens the door to an attack on the ambit of litigation privilege.

The fundamental concept of legal context is unlikely to be qualified in relation to litigation privilege, but why should communications between a party and potential witnesses of fact be privileged? We are all now used to the idea that letters of instruction from a party to an expert witness are liable to be disclosed.

Can we all go back to sleep?

In one sense, the House of Lords’ decision means that ‘normal service’ has been resumed. However, things will never be quite the same again. There is a new level of awareness of the ways in which claims to privilege can be tested. Lawyers need to be aware of the rules at all times.

If the legal context of communications is obvious, then one can carry on as before. But if there is any doubt about legal context, the risk of subsequent disclosure has to be recognised. That risk will need to be explained to the client, and if the client does not wish to take the risk, the creation of documents will need to be avoided. However, that approach exposes the lawyer to risk if his role is ever challenged by the client.

Peter Cherry is a barrister of Chancery House Chambers. He can be contacted via telephone 0113 2446691 or via www.chanceryhouse.co.uk