Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.

On 11 November 2004 the House of Lords gave its long awaited reasons in the case of Three Rivers District Council and Others v Governor and Company of the Bank of England [2004] UKHL 48. The decision is important because it clarifies the ambit of legal advice privilege in English law; that is the privilege that exists in communications between a client and its lawyer.

Summary of the decision

The House of Lords unanimously rejected the restrictive interpretation of legal advice privilege that had been given to it by the Court of Appeal. It held that the privilege was not limited to advice about the client’s legal rights and obligations, as the Court of Appeal had decided, but included all confidential communications as to what should prudently and sensibly be done in any given legal context. Accordingly, advice about how material might be presented to an inquiry was privileged.

In their judgment, the House of Lords decided not to address the important question of who at law is to be regarded as the client. This is an important limitation on the decision and leaves the current law in an unsatisfactory position.

History

The Three Rivers case arose out of the collapse of BCCI in 1991. Following the collapse, an inquiry was set up under Lord Bingham to enquire into the supervision of BCCI and to consider whether the action taken by the UK authorities was appropriate and timely. The Bank of England (the “Bank”) was the principal party investigated and it appointed three officials to deal with communications between the Bank and the Inquiry which became known as the Bingham Inquiry Unit (“BIU”). The Bank retained lawyers to advise generally on all dealings of the Bank, its officials and employees with the Inquiry.

The Bingham Inquiry Report was published in October 1992 and depositors and the liquidators of BCCI subsequently commenced proceedings against the Bank for the losses caused by the collapse of BCCI. Because of the Bank’s statutory protection from claims in negligence, to succeed the claimants had to show that the Bank had acted in bad faith. This requirement placed a very high hurdle before the claimants.

In October 2002 the claimants sought disclosure by the Bank of a large number of documents. The Bank claimed that the documents were privileged as they were brought into existence by employees of the Bank for the purpose of being passed to its lawyers. The Bank conceded that, because the Inquiry was inquisitorial rather than adversarial in nature, the documents were not covered by litigation privilege. Litigation privilege attaches to all documents brought into being for the purposes of litigation. The question was whether the documents were covered by legal advice privilege, the narrower head of privilege that covers confidential communications between a client and his lawyer whereby legal advice is sought or given.

Decisions at first instance and in the Court of Appeal

At first instance, Tomlinson J decided that the documents were covered by legal advice privilege. The Court of Appeal, however, disagreed and in what became known as Three Rivers (No.5) took a very narrow view of the ambit of legal advice privilege and held that only communications passing between a lawyer and his client, and evidence of the content of such communications, for the purpose of seeking or giving legal advice were privileged. As much of the material had been prepared to enable the Bank to present factual matters to the Inquiry in the best light, i.e. for presentational purposes, it was not privileged. Moreover, the Court of Appeal held that because the BIU had been set up by the Bank to seek and receive advice from the lawyers, only the BIU could be regarded as the client. Accordingly, communications between the lawyers and other officials or employees of the Bank, however senior, were not privileged. The Bank’s petition for leave to appeal to the House of Lords was refused.

As a result of the decision in Three Rivers (No.5), and the narrow interpretation given by the Court of Appeal to legal advice privilege, the liquidators of BCCI sought disclosure of communications between the BIU and its lawyers which were concerned with the presentation of evidence to the Inquiry. Tomlinson J ordered the disclosure and this order was upheld by the Court of Appeal in a decision which became known as Three Rivers (No.6). The Court of Appeal held that for legal advice privilege to exist, the advice being sought from the lawyers must be advice as to legal rights or liabilities. Advice as to how the Bank should present its case to the Inquiry was not privileged.

Decision of the House of Lords

Who is the client?

The first point to stress is the narrow issue which the House of Lords actually considered. The appeal before it was concerned with whether communications between the BIU and its lawyers were privileged (Three Rivers (No.6)). It was not an appeal from the Court of Appeal decision in Three Rivers (No.5) (which the House of Lords had previously declined to hear) in which the Court of Appeal had held that only the BIU could be regarded as the client. This aspect of the decision had serious ramifications because it meant that communications between employees of the Bank and its lawyers, apart from the BIU, were effectively communications with third parties and, therefore, not privileged.

The House of Lords was invited to consider this aspect of the Court of Appeal’s decision, in particular, given its great importance for corporate clients, who can only communicate through employees or officers, but declined to do so.

Ambit of legal advice privilege

The House of Lords unanimously rejected the restrictive approach adopted by the Court of Appeal which was founded on an analysis of authorities concerned with private law rights. The House of Lords considered that the privilege extended to advice about public law rights and obligations which included how a party might wish to present its evidence to an inquiry. Legal advice privilege was not confined to telling the client the law but included all confidential communications between a lawyer and client as to what should sensibly be done in any given legal context. What was important was the existence of a “legal context”. Where there was no legal context then the advice would not be privileged.

The House of Lords examined the rationale for legal advice privilege and concluded that its continued existence was strongly in the public interest. There were many reasons why legal advice might be sought in relation to a person’s affairs and for that advice to bring about the desired result it was essential that the full facts had to be placed before the lawyer. If there was no certainty that what the client had told the lawyer would remain confidential then there was a risk that the client would be less than candid.

Implications

The decision is welcome as it makes clear that legal advice privilege is not just concerned with advice about legal rights and obligations. It will cover all communications between a lawyer and his client provided they are directly related to the performance by the lawyer of his professional duty as legal adviser. If the Court of Appeal decision had stood then a party could have been required to disclose communications with his lawyers which were not strictly concerned with advice about legal rights and obligations. Given the large number of regulators with powers to carry out investigations this would have been a worrying development.

The failure by the House of Lords to address the question of who can properly be considered the client is, however, unfortunate. It means that the narrow interpretation adopted by the Court of Appeal is the current law. The BIU was considered to be the client because it had been set up by the Bank to deal with inquiries and seek and receive advice from the lawyers. Other employees were considered to be third parties however senior their position.

As a corporation can only act through its officers and employees, there may be many cases where it is unclear who is properly to be regarded as the client. Such uncertainty could well mean that sensitive communications between employees of a company and the company’s external lawyers are not considered by the law to be communications between a lawyer and its client and, as such, are not privileged from disclosure. In the case of in-house lawyers, it also poses the question: who, within the organisation, are the clients of the in-house lawyer?

It is, therefore, extremely important that, in any matter where sensitivities may arise, steps are taken by the company at an early stage to identify who within the organisation is to liaise with the external lawyers and who is therefore to be regarded as the client. Written communications between the lawyers and other parties within the organisation should be kept to a minimum. For in-house lawyers there is a good argument for saying that the company, including all employees who seek legal advice, are the in-house lawyer’s clients and therefore advice given to one employee which is passed on to another employee should remain privileged. This, however, is currently a grey area and will form the subject of a separate briefing note.

A version of this article was published in E-Commerce Law Reports.

Click here to read our briefing on Legal Advice Privilege.

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