The long read: privilege in a post-ENRC world
Businesses breathed a sigh of relief last year when the Court of Appeal (CA) overturned the controversial High Court decision on litigation privilege in SFO v ENRC [2018] EWCA Civ 2006.
Since then, however, the spate of decisions arising from challenges to legal professional privilege has continued unabated. This emphasises that organisations dealing with sensitive internal issues must consider privilege from the outset if they are to minimise unwanted disclosure to third parties.
Who is the ‘client’?
Legal advice privilege (LAP) applies to confidential communications between a lawyer and their client created for the dominant purpose of giving or receiving legal advice.
In general, the lawyer may be in either private practice or in-house. No dispute needs to be on the horizon. LAP encourages businesses to speak candidly when seeking advice from their lawyers.
However, LAP has limits. In particular, it only applies to communications between a lawyer and their ‘client’.
In a corporate organisation, the ‘client’ is restricted to those individuals tasked with seeking and receiving legal advice on behalf of the organisation.
This will not include ‘mere’ employees from whom information is sought when ascertaining facts relevant to an issue, regardless of their seniority. That is true whether the investigation or review is being conducted by a lawyer (whether in-house or external), and even if the information is needed by lawyers to advise.
In ENRC , this meant LAP did not apply to notes of fact-finding interviews carried out by the business’ lawyers as part of their investigation into a whistleblower’s allegations of “corruption and financial wrongdoing”. The employees interviewed were not the ‘client’.
The CA was critical of this narrow definition, but found that it represents the law until the Supreme Court has the opportunity to revisit the position.
ENRC is not going to the Supreme Court, and we are not aware of any other case likely to do so in the near future. The ‘client’ therefore remains narrow.
This can be particularly challenging for in-house lawyers. When an external law firm is appointed, a ‘client team’ is commonly established in the formal engagement process. However, an in-house lawyer’s role and relationships within the business can be less clear-cut.
Sometimes, an in-house lawyer will be the designated ‘client’ instructing external lawyers and receiving their privileged advice. This may involve gathering information from non-‘client’ employees, an exercise which will not generally attract LAP.
In other circumstances, the in-house lawyer may themselves be giving legal advice. Requests to do so may come from a range of sources within the business, not all of whom will necessarily be the ‘client’.
Sometimes, the in-house lawyer may wear different ‘hats’ or their role may shift in the course of a matter.
Glaxo Wellcome UK v Sandoz
Some of these difficulties were illustrated by Glaxo Wellcome UK Ltd v Sandoz Ltd [2018] EWHC 2747 (Ch).
A company’s in-house lawyer sought information from an employee, apparently in order to provide it to external lawyers who were advising.
A claim to LAP in those information-gathering communications failed.
The judge was not persuaded by an argument that the employee was authorised to seek advice from the in-house lawyer where it was relevant to the performance of their job functions, and could be described as a ‘client’ in those circumstances.
On this occasion, the employee was not the ‘client’ tasked with obtaining the relevant legal advice from the external lawyers.
This highlights that an individual may be an in-house lawyer’s ‘client’ for some purposes, but not others.
It also emphasises that where an in-house lawyer is the ‘client’ for the purpose of seeking external legal advice, any information gathering they do internally may not be privileged, unless perhaps the in-house lawyer is also advising, or litigation privilege applies.
Legal v commercial
Another issue for in-house lawyers is that they may perform both legal and business roles.
It is well established that advice given as a ‘man of business’ is not privileged legal advice.
However, in practice it can sometimes be difficult to distinguish between advice on what should sensibly be done in the context of the business’ legal rights and obligations, which can be privileged, and purely commercial advice, which will not be.
UTB LLC v Sheffield United
This issue is not exclusive to in-house lawyers, as was illustrated recently by UTB LLC v Sheffield United Ltd [2019] EWHC 914 (ChD), where an external lawyer also acted as a client’s man of business and was himself a director of joint venture companies in which (simplifying for present purposes the corporate structure) the client was a shareholder.
The disclosure exercise involved an apparently detailed exercise in distinguishing between actions undertaken as a lawyer and actions undertaken in a business capacity.
However, the issue is even more common for in-house lawyers.
Jet2.com v CAA
The difficulty may recently have become more acute. There has been debate, including in the CA in ENRC , about whether there is a ‘dominant purpose’ test for LAP.
In Jet2.com Ltd v Civil Aviation Authority [2018] EWHC 3364 (Admin) and [2019] EWHC 336 (Admin), Mr Justice Morris found that there is: for LAP to apply to a communication, the seeking or giving of legal advice must be its dominant purpose, and not just one of its purposes.
As a result, where an in-house lawyer is consulted on an issue with both legal and commercial angles, the question will arise whether the purpose of consulting them is principally to obtain legal advice or principally for commercial input. If the latter, LAP will not apply.
The Jet2 case also considered the status of internal communications with multiple recipients, including both legal and non-legal staff.
If the dominant purpose of a multi-addressee email is to seek advice from a lawyer, with others copied in for information only, LAP is likely to apply.
If, however, the dominant purpose of the email is to seek commercial views, then the fact that a lawyer is one of the recipients will not protect the email from disclosure, even if the reason for including the lawyer is to obtain their legal advice.
It will be interesting to see if the CA revisits these issues, given that in ENRC it did not consider a ‘dominant purpose’ test necessary in the context of LAP, albeit it did not have to finally determine the point.
For now, it must be assumed that such a test will apply.
Litigation privilege
The non-privileged status of purely commercial discussions has also arisen recently in relation to the other form of legal professional privilege: litigation privilege.
Litigation privilege applies to confidential communications created for the dominant purpose of seeking information or advice in connection with the conduct of litigation which is ongoing, pending or “reasonably in contemplation”.
WH Holding v E20 Stadium
In WH Holding Ltd v E20 Stadium LLP [2018] EWCA Civ 2652 , the CA held that internal emails between board members discussing the possible commercial settlement of a dispute did not attract litigation privilege.
In doing so, the court focused on a part of the test for litigation privilege which has previously received little attention, namely that the communication must be “for the purpose of obtaining information or advice”.
Since the communications in question here apparently involved neither, they did not attract litigation privilege.
This decision has been controversial.
Many organisations may have assumed that such discussions would be privileged, particularly following the much-welcomed confirmation by the CA in ENRC that communications relating to avoiding or settling a dispute can attract litigation privilege just as much as communications relating to defending proceedings.
The E20 decision is not understood to be going to the Supreme Court so, for now at least, it is authoritative.
The practical impact of the decision should not, however, be overstated. It has long been dangerous to make a blanket assumption that once there is a dispute, all discussions relating in some way to it will be protected by litigation privilege.
Moreover, the court recognised that if a communication reveals the nature of privileged advice or information obtained, it will generally be privileged.
Since it is rare for internal discussions about settlement to make no reference to information or advice obtained in relation to the dispute, the problem in E20 is unlikely to arise often.
Multiple purposes
The risks which arise, in the context of LAP, from communications with both legal and commercial purposes, have already been discussed.
Activities with a dual purpose also continue to trouble the courts when considering the ‘dominant purpose’ test in the context of litigation privilege.
In ENRC , there were arguments about whether anticipated criminal litigation was the dominant purpose of the internal investigation, so that litigation privilege should apply.
The first instance judge had identified other purposes to the investigation, such as compliance and governance, which she regarded as distinct, non-litigation purposes.
The CA, however, took a more commercial, pragmatic approach, recognising that the existence of these related purposes did not mean that the dominant purpose was not litigation.
Bilta v RBS
This continued the approach in Bilta (UK) Ltd (In liquidation) v Royal Bank of Scotland plc [2017] EWHC 3535 (Ch), where the court took “a realistic, indeed commercial, view of the facts” and upheld a claim to privilege made by RBS, represented by Pinsent Masons, in respect of the products of an investigation.
The investigation had been conducted by the bank after receiving a letter from HM Revenue and Customs (HMRC), alleging that the bank knew or should have known that it had participated in transactions connected with fraud.
The court rejected an argument by Bilta that what the bank was really doing was trying to persuade HMRC not to issue a tax assessment and found that this was at most a subsidiary purpose, the dominant purpose being anticipated litigation with HMRC.
Sotheby’s v Mark Weiss
However, the recent decision in Sotheby’s v Mark Weiss Ltd [2018] EWHC 3179 (Comm) illustrates that these questions are highly fact-sensitive, and that investigations or reviews which have more than one purpose – which, in practice, will often be the case – remain at risk of a finding that litigation privilege did not apply.
In Sotheby’s , litigation privilege was held not to attach to communications between Sotheby’s and an art expert to ascertain the authenticity of a painting which had been sold through the auction house.
One of the purposes of that correspondence was contemplated litigation with the seller of the painting.
However, another purpose was to decide whether to act under a clause in the contract with the buyer, which provided that if the painting was counterfeit, the sale would be rescinded and the purchase price repaid.
The court considered this a commercial purpose – reminding us that considering whether rights or remedies under a contract have been triggered is not necessarily a litigation purpose, even where litigation is likely to follow if the decision goes a particular way.
The court held that Sotheby’s had not established that the litigation purpose was the dominant of these two purposes. As a result, litigation privilege did not apply.
Practical lessons
There are a number of practical take-aways from these decisions to consider.
- Avoid generating unnecessary documentary records. Consider picking up the phone rather than sending another email.
- Think carefully about the nature of your role in a particular matter. If you are being asked for advice, is that advice legal, rather than commercial, advice? And is the person asking for it someone who would be regarded as your ‘client’? If in any doubt, seek clarification. Internal protocols should set out who is the ‘client’ for different purposes. If you are yourself the ‘client’ instructing external lawyers, be wary of gathering information from other employees, as that will not generally be privileged unless litigation privilege applies.
- Consider and carefully record the purpose of any communication. Label documents ‘ Privileged and Confidential – created for the purpose of obtaining legal advice / in contemplation of litigation’(as applicable), but also go beyond this. If conducting litigation is the dominant purpose, make this clear, recording in writing why litigation is contemplated and making clear that other purposes are secondary. If obtaining your legal advice (not just commercial input) is the dominant purpose of an internal email, again ensure that is clearly documented.
- Separate legal and purely business discussions, avoiding mixing the two within the same communication or written record (board minutes, for example) wherever possible. Commercial or strategic advice arising out of legal matters can be privileged, but ensure it is given in the context of legal rights and obligations and not as stand-alone advice.
- Practise good email discipline. Avoid sending emails to long lists of recipients. Where both legal and non-legal staff are included in an email seeking input, there is an increased risk of dispute over whether the dominant purpose is to obtain privileged legal advice or non-privileged commercial input. Also, wide circulation risks the loss of confidentiality, and therefore of any privilege, in the material enclosed.
- Control the dissemination and discussion of privileged matters. For example, if litigation is discussed internally, consider whether this can be done in person rather than in writing. If a note has to be prepared, its contents should reveal the nature of the advice or information obtained for the purpose of conducting the litigation, in order to maximise the chances of litigation privilege applying. It may also be possible to structure the discussions in such a way as involves the seeking and giving of legal advice by lawyers to the appropriate individuals within the business as the ‘client’.
- Consider whether the circumstances are such that external lawyers should be appointed. Specialist investigations lawyers can work with you to structure any investigation or review to maximise the protection of privilege. The involvement of external lawyers can also help evidence that, for example, litigation is reasonably contemplated, or that the business is seeking legal, and not purely commercial, advice. As a result, external lawyers should generally be instructed before commencing any internal investigation, and in relation to any other particularly sensitive subject matter.