The long read: legal professional privilege – an update for in-house lawyers
It is approaching two years since the Court of Appeal handed down its judgment in Director of the Serious Fraud Office v Eurasian Natural Resources Corpn [2018] EWCA Civ 2006, which many saw as restoring the position on legal professional privilege (LPP) after a period of erosion. However, as explored this time last year in our article, privilege issues continued to trouble businesses and the courts.
That trend has persisted: litigation opponents, regulators and law enforcement can be expected to challenge assertions of privilege, and there has been a steady stream of decisions involving such challenges.
Many have ultimately resulted in decisions reaffirming the sanctity of LPP. However, arriving at this point or confirming the position has often involved argument to appellate level, with the cost, uncertainty and publicity that involves.
This emphasises again the importance of being alert to privilege issues whenever sensitive communications are to be created. We discuss below some particular areas of focus in the courts in the last 12 months and the key takeaways for in-house lawyers.
Legal advice privilege
The impact of ENRC was to return the law on litigation privilege (LP) to its proper position, which applies where confidential communications are created for the dominant purpose of obtaining information or advice in connection with the conduct of adversarial litigation which is reasonably in contemplation.
However, for many in-house lawyers, the more significant form of LPP day-to-day is legal advice privilege (LAP). They are not dealing with a potential or actual dispute, but advising the business on non-contentious matters. Many of the recent cases have focused on this latter form of privilege.
There can be a lack of understanding by the business of the significance of a lawyer’s involvement, with the mistaken view that copying an in-house lawyer into communications necessarily clothes them with privilege
LAP applies to confidential communications between a lawyer and client created for the dominant purpose (see further below) of giving or receiving legal advice.
In general, the lawyer in question may be an in-house lawyer, and the client may be an internal client, although, as discussed in our previous article, it is important to show that the seeker of the advice was the ‘client’ authorised to receive legal advice on behalf of the business.
The ‘continuum’ of communications
Helpfully, it is not only a specific request for, or document conveying, legal advice which may be covered. The law also recognises that in most lawyer/client relationships, advice may be required at various stages.
Where information is passed between the lawyer and client as part of the ‘continuum’ of communications aimed at keeping both informed, so that advice may be sought and given as and when appropriate, the whole continuum will be privileged.
In addition, legal advice is not limited to advice on the letter of the law: it includes advice on “what should prudently and sensibly be done in the relevant legal context” (Balabel v Air India [1988] 1 Ch 317).
Raiffeisen Bank International
The breadth of the continuum was seen in Raiffeisen Bank International AG v Ashurst LLP & anor [2020] EWCA Civ 11.
Lawyers acting for a party financing a corporate purchase gave a bank, which held security over shares in the target company, written confirmation that they, the lawyers, had funds and irrevocable instructions to transfer these into an escrow account or hold them pending agreement on an alternative arrangement.
The bank released its security and the buyer obtained the shares, but the full purchase price was not paid and the lawyers no longer held the funds.
The bank sued the lawyers for breach of their obligations under the written confirmation, and sought disclosure of communications between the lawyers and their client about what was to be done with the funds.
The CA held that the client’s instructions in this regard attracted LAP. Although they were not themselves requests to advise on the law, they formed part of a continuum of communications in a relevant legal context, and were inextricably bound up with the legal advice which the lawyers would have given their client as part of their role as its legal advisers on the transaction.
This concept of the continuum of privileged communications can be particularly valuable in an in-house context, where there may well not be a clear-cut set of instructions to lawyers to advise or give a formal legal opinion in response, but there may well be an ongoing exchange of information, questions and advice as a particular transaction or issue progresses.
Commercial vs legal advice
However, there remain important limits on which communications with an in-house lawyer will attract LAP. It is not only a document from a lawyer containing legal advice which may be privileged, but also the client’s own written record of advice and communications passing on, considering or applying that advice internally, insofar as they reveal the advice
One perennial issue is that in-house lawyers may perform both legal and business roles. Only when their legal advice (in the sense discussed above) is being requested or given may privilege apply: purely commercial advice is not privileged. There can be a lack of understanding by the business of the significance of a lawyer’s involvement, with the mistaken view being taken that copying an in-house lawyer into communications necessarily clothes them with privilege.
These issues came into focus in Jet2 v Civil Aviation Authority [2020] EWCA Civ 35, in which the Law Society intervened. In judicial review proceedings against the Civil Aviation Authority (CAA), airline Jet2 sought disclosure of CAA internal communications and drafts connected with correspondence, published in the press, in which the CAA had criticised the airline’s decision not to join a passenger complaint resolution scheme. The CAA resisted disclosure of the documents, relying, in support of a claim to LAP, on the fact that they had been sent to in-house legal, amongst others.
The court held that the correspondence was not privileged. It confirmed that to attract LAP, legal advice had to be not simply one of its purposes, but its dominant purpose. This settled a point of debate on which different views had previously been reached by different courts, including the CA in ENRC , which doubted that a ‘dominant purpose’ requirement was part of the test for LAP, as it was for LP.
The court in Jet2 considered the implications of there being a dominant purpose test for emails sent to multiple recipients, some but not all of whom are lawyers. When considering whether privilege attached to such an email, it had to be asked what the dominant purpose of the email was.
If the dominant purpose was seeking a lawyer’s legal advice, the email would be privileged. However, if the dominant purpose was seeking commercial input, the email would not be privileged despite the inclusion of the lawyer, unless it might realistically give away the nature and content of legal advice also being sought and obtained.
This emphasises that simply copying a lawyer into a communication will not clothe the exchange with privilege. The communication must be sent with the dominant purpose of seeking the lawyer’s legal advice, or contain details of legal advice provided.
Nor does privilege attach to a non-privileged document, such as a pre-existing draft which was not prepared for the purpose of taking legal advice, just because it is subsequently appended to a privileged communication. This was confirmed in Sports Direct International plc v Financial Reporting Council [2020] EWCA Civ 177. This point is, however, understood to be the subject of an application for permission to appeal to the Supreme Court, and therefore one to watch for the future.
It is important to educate the business about the limits of LPP. In-house lawyers should be ready to correct any misconceptions they see arising.
The ‘iniquity exception’
An interesting recent trend has been the significant number of reported cases addressing the so-called ‘iniquity exception’ to LPP. This provides that privilege does not attach to communications created in furtherance of a crime, fraud or other iniquity.
For example, if a client (including an internal client) seeks advice from a lawyer as to how to carry out a fraud, the communications in question will not attract privilege. This is the case regardless of whether the lawyer is aware that its advice is being sought for that purpose.
Addlesee v Dentons Europe
Classic circumstances in which the exception might apply were illustrated in Addlesee v Dentons Europe LLP [2019] EWCA Civ 1600.
Solicitors acting for operators of a purported gold dust investment scheme had provided letters of comfort, to encourage investment in the scheme.
The court held that the scheme had “classic hallmarks” of fraud and that the solicitors had been instructed for the purposes of furthering it. As a result, solicitor/client communications were disclosable to the investors in an action brought by them.
While that may seem like an extreme situation, the iniquity exception is potentially problematic, including for in-house lawyers, because there is debate about the type of ‘iniquity’ which may make communications disclosable. The carrying out of a crime or fraud is clearly covered, but what about other types of reprehensible conduct?
Curless v Shell International
Curless v Shell International Ltd [2019] EWCA Civ 1710 concerned advice given about the termination of the employment of an employee who had been given low performance ratings and was pursuing a claim for disability discrimination.
A redundancy exercise was taking place and an in-house lawyer advised in an email that, given this, there was “at least a wider reorganisation and process at play that we could put this into the context of”, provided it was “done with appropriate safeguards and the right circumstances”. The employee argued that this amounted to advice that redundancy could be used as a cloak for discriminatory dismissal, and therefore triggered the iniquity exception so that the email was not privileged.
The Court of Appeal (CoA) disagreed with this interpretation, finding that this was ”the sort of advice which employment lawyers give ‘day in, day out’ in cases where an employer wishes to consider for redundancy an employee who (rightly or wrongly) is regarded by the employer as underperforming”, and was not “advice to act in an underhand or iniquitous way”.
This differed from the view of the Employment Appeal Tribunal, which in turn disagreed with the Employment Tribunal before it, showing the scope for different courts to take different views on the same privilege question.
The courts have shown some reluctance in recent cases to find that privilege has been waived or lost, but this generosity cannot be guaranteed.
Given its finding, the CoA did not discuss the scope of the iniquity exception further. As a result, the Curless decision does not shed further light on the circumstances in which conduct falling short of a crime or fraud is caught. In particular, there remains a question as to whether dishonesty is required, or whether other conduct which the court considers contrary to public policy may be enough to make otherwise privileged documents disclosable.
This is problematic, because businesses should be able to identify with confidence when consulting with their lawyers whether or not the communications between them will or will not be privileged from disclosure to third parties.
Likewise, lawyers, including in-house lawyers, need to be able to give appropriate warnings if the nature of what they are being asked is such that the resulting exchanges might be disclosable. More judicial guidance in this area would therefore be beneficial.
Sharing privileged material
A frequent issue for in-house lawyers is that they may need to share privileged material, such as advice obtained from external lawyers, with a range of stakeholders. For example, it may be necessary or desirable to report to the board or other key individuals; to share information with insurers or auditors; or even to share information with more remote third parties such as potential investors.
The law recognises the need for some sharing of privileged material within an organisation. As explained by the CoA in Jet2 v CAA (see paragraph 45) , it is not only a document from a lawyer containing legal advice which may be privileged, but also the client’s own written record of advice and communications passing on, considering or applying that advice internally, insofar as they reveal the advice.
Where it is necessary to report to the board, it may be possible for the lawyers involved to do this by way of giving legal advice to the board as their ‘client’, thereby attracting LAP.
It is also possible in certain circumstances to confidentially share privileged material with outside parties which have a common interest in it, such as other group companies or insurers, and even sometimes with third parties without such a common interest, provided there is a clear, limited purpose for the sharing.
The iniquity exception is potentially problematic, including for in-house lawyers, because there is debate about the type of ‘iniquity’ which may make communications disclosable
However, this is a complex and fact-sensitive area, and businesses and their legal teams must take great care. If confidentiality is lost, privilege is lost. The courts have shown some reluctance in recent cases to find that privilege has been waived or lost, confirming for example that confidentiality, and therefore privilege, is only lost when information is known to a substantial number of people (Winstone v MGN Ltd [2019] EWHC 265 (Ch)).
However, this generosity cannot be guaranteed. As a result, any proposed sharing of privileged material should be treated with great caution, and even where essential, should often be documented in an appropriately-drafted information-sharing agreement.
Regulators’ rights to privileged information
Businesses might also be asked to share privileged material with regulators. Although the multiple considerations around such requests, including decisions about whether to waive privilege, are beyond the scope of this article, one important point for in-house lawyers arises from the CoA’s decision in Sports Direct . The Financial Reporting Council (FRC) requested documents from Sports Direct in connection with an investigation into its auditor.
Overturning a controversial High Court decision that the FRC was entitled to obtain these documents even if privileged, the court held that in the absence of a specific statutory right to override privilege, the FRC was not so entitled. While this point, too, is understood to be the subject of an application for permission to appeal to the Supreme Court, for the time being the decision emphasises the sanctity of LPP and the importance, for businesses that receive regulator requests for documents, of taking early specialist legal advice on their rights.
Practical guidance
The practical guidance in our previous article remains critical to maximising the chances that the protection of LPP will apply and not be lost, and to avoiding becoming involved in protracted disputes in this area. In addition, the courts’ decisions in the last year highlight the following additional points.
- While it is not only a specific request for advice on the law or legal advice in response which may be covered by LAP, exchanges between the business and in-house lawyers should make as clear as possible that the context is that legal advice is being sought and given, and that this is the dominant purpose of the communications.
- It is important to educate the business about the limits of LPP. Neither copying a lawyer into an email exchange nor attaching a document to an email seeking legal advice will be sufficient to attract privilege. Training may be needed, and in-house lawyers should be ready to correct any misconceptions they see arising.
- In-house lawyers should be alive to the existence of the iniquity exception, and ready to give appropriate warnings if it seems to them that the nature of what they are being asked is such that the resulting exchanges may not be privileged.
- Caution should continue to be exercised in relation to the sharing of privileged material, whether internally or externally. Where material must be shared, an information-sharing agreement, setting out points such as the purpose of the sharing and strict obligations of confidentiality, is often advisable.
- Early specialist advice should be taken if a request for documents is received from any regulator.
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.