This autumn has seen two significant judgments which provide an indication of the judiciary’s current thinking on both litigation and legal advice privilege. They have provided some clarity but significant uncertainties remain. This article summarises the current state of the law in the context of these judgments and considers the prospects for further change when the Supreme Court looks at the scope of legal advice privilege.
First, the good news. The Court of Appeal has overturned the controversial High Court ruling in SFO v Eurasian Natural Resources Corporation which had imposed an overly restrictive approach on the scope of litigation privilege. Lawyers and clients breathed a sigh of relief and The Law Society described the decision as a boost for the principle of lawyer-client confidentiality.
On the other side of the ledger, the Court of Appeal in ENRC did not feel able to overturn the controversial judgment Three Rivers No 5. The Court of Appeal made it clear that if it had been able to depart from Three Rivers it would have done so. The restrictive principle it established, that limits the scope of legal advice privilege to communications between a lawyer and those employees who are authorised to seek or receive legal advice on behalf of the company, is therefore ripe for consideration by the Supreme Court.
In the meantime, the practical difficulties caused by Three Rivers were brought into sharp focus by the recent High Court judgment in Glaxo Wellcome UK Ltd v Sandoz Ltd a case about whether communications sent and received by an in-house lawyer were privileged.
SFO v ENRC – common sense restored
In a judgment in 2017 that provoked howls of protest in the legal community, the High Court found that documents created by a company’s legal advisers and forensic accountants in the context of an internal investigation were not covered by litigation or legal advice privilege.
In its much-anticipated judgment, the Court of Appeal overturned the High Court’s decision and held that the documents in question were protected by litigation privilege. There were hopes that that the SFO would appeal to the Supreme Court which could then have revisited the Three Rivers approach to legal advice privilege. However, on 2 October 2018 the SFO announced that it would not pursue an appeal.
The scope of litigation privilege
Litigation privilege protects documents which are created:
- when litigation is in progress or is reasonably in contemplation
- for the sole or dominant purpose of conducting that litigation or anticipated litigation, and
- in circumstances where the litigation is adversarial, not investigative or inquisitorial.
Importantly, unlike legal advice privilege (that applies only to communications between lawyer and client) litigation privilege can apply to communications between a lawyer and third parties, between a client and third parties or internal communications within a company.
The main issue in ENRC was whether litigation was in the reasonable contemplation of the company when the documents in question were created. The High Court had taken a restrictive approach. It decided that litigation was not in reasonable contemplation when ENRC’s legal advisers and forensic accountants were investigating serious allegations made by a whistle blower, even though a criminal prosecution would be likely to follow if the allegations were true.
The Court of Appeal took a more generous approach and provided helpful guidance on how the courts should determine whether litigation was in the reasonable contemplation of a party:
- It is not necessary for an organisation embarking on an internal investigation to be certain that a prosecution or civil proceedings will follow, or for it to know the full details of what has happened, for proceedings to be in reasonable contemplation.
- Not every expression of concern by a regulator would properly be regarded as the start of adversarial proceedings. However, once a regulator has indicated that it is contemplating a formal investigation then litigation (in the form of a criminal prosecution) is clearly in contemplation.
- The fact that a formal criminal investigation or civil proceedings have not been commenced is part of the relevant factual matrix but will not determine the issue. In ENRC the fact that the company had at an early stage engaged external lawyers to advise on the issue showed how seriously the company took the issue and suggested that litigation was in its reasonable contemplation.
- Legal advice given with a view to avoiding or settling legal proceedings is as much protected by litigation privilege as advice given for the purpose of defending such proceedings.
The Court of Appeal’s decision has been welcomed as a common-sense approach which has restored clarity for businesses and in-house lawyers.
The scope of legal advice privilege
Legal advice privilege applies to communications between a lawyer and a “client” for the purpose of giving or obtaining legal advice. There is no need for litigation to be in contemplation.
The question of which individuals are included in the definition of the “client” is therefore vital. The current position is set out in Three Rivers No 5 which decided that communications between a lawyer and an employee of a client company would only attract legal advice privilege if that employee was tasked with seeking and receiving such advice on behalf of the company.
This can cause particular difficulties for larger or more complex companies. The larger the company the less likely it is that the employees or directors charged with seeking or receiving legal advice will hold all of the background information the lawyers require. If the lawyers request information from employees who fall outside the narrow definition of “client” their communications with those employees will not be privileged.
The judgment in Sandoz, handed down on 25 October 2018, applied the strict approach required by Three Rivers to communications between an in-house lawyer employed by Sandoz and another employee of the company. External lawyers had been engaged by Sandoz but litigation was not in contemplation so litigation privilege was not available.
The Court held that communications in which the employee sought legal advice from the in-house lawyer alongside the advice being sought from external counsel did attract legal advice privilege. In those circumstances, the employee was the “client” for the purpose of the Three Rivers test. However, other communications between the same individuals about the same subject matter in which the in-house lawyer sought information to allow her to obtain advice from external counsel were not privileged. For the purpose of those communications the in-house lawyer was the “client” of external counsel but the other employee was not.
This illustrates how much of a minefield this area has become. It highlights the need for real care, particularly on the part of in-house lawyers, to identify both the purpose of each line of communication and which individual or individuals are the “client” in each case.
Prospects for change
In ENRC the Court of Appeal went to some lengths to explain why the narrow approach to legal advice privilege required by Three Rivers is undesirable. It also noted that the English law is out of step with the international common law on this issue. It is clear that the Court of Appeal would have departed from Three Rivers if it had felt able to do so but it concluded that the point would have to be dealt with by the Supreme Court. There is now real momentum in favour of revisiting Three Rivers.
Practitioners are eagerly awaiting the right case to allow the Supreme Court to give definitive guidance. It is likely that for a suitable case permission would be given for a leapfrog appeal from the High Court straight to the Supreme Court. There are a number of approaches the Supreme Court could take and there is probably no straightforward solution to such a complex issue. The justices could, for example, extend the protection afforded by legal advice privilege to all employees of a client company. Alternatively, they could extend the protection to all communications that are created for the “dominant purpose” of giving or receiving legal advice. Either way, the sooner the position is clarified the better.
If you require further information about anything covered in this briefing note, please contact Ben Longworth, or your usual contact at the firm on +44 (0)20 3375 7000. Further information can also be found on the Disputes page of our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, November 2018