High Court rejects claim to litigation privilege in advice from accountants on tax structure

In a recent decision, the High Court has held that advice from accountants on a proposed new tax structure was not prepared for the dominant purpose of litigation, and was therefore not protected by litigation privilege, even if litigation over the relevant tax affairs was in reasonable contemplation at the time the advice was given: The Financial Reporting Council Ltd v Frasers Group Plc (formerly Sports Direct International Plc) [2020] EWHC 2607 (Ch).

The decision emphasises that, for litigation privilege to apply, a communication or document must have been prepared for the dominant purpose of obtaining advice or evidence in relation to litigation that is reasonably in contemplation. As the judge explained, even if it is contemplated that a particular tax structure will be subject to challenge, and eventual litigation, advice as to how to implement the new structure is not primarily advice as to the conduct of the potential litigation.

While not surprising, the decision illustrates the point that advice about a potential course of action may not be covered by litigation privilege, even if that course of action is expected to lead to litigation. Where the advice in question is legal advice given by lawyers, legal advice privilege (rather than litigation privilege) is likely to apply. However, legal advice privilege does not apply to advice from other professionals, as confirmed by the Supreme Court in R (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1 (considered in this blog post). Continue reading

Commercial litigation podcast series – Episode 4: General update

In this fourth episode of our series of commercial litigation update podcasts, we look at a variety of cases and developments, including an update on the disclosure pilot and proposals in relation to witness statements. We also look at recent cases on privilege, witness evidence, access to court documents, claim notices and freezing injunctions. This episode is hosted by Anna Pertoldi, a partner in our litigation team, who is joined by Maura McIntosh, a professional support consultant, and Kevin Kilgour, a senior associate.

Our podcast is available on iTunes, Spotify and SoundCloud and can be accessed on all devices. A new episode will be released every couple of months. You can subscribe and be notified of all future episodes.

Below you can find links to our blog posts on the developments and cases covered in this podcast:

Anna Pertoldi
Anna Pertoldi
Partner
+44 20 7466 2399
Maura McIntosh
Maura McIntosh
Professional support consultant
+44 20 7466 2608
Kevin Kilgour
Kevin Kilgour
Senior associate
+44 20 7466 2584

High Court finds no need to enquire into qualifications of foreign lawyer in applying English law privilege

In a judgment handed down last Friday, 11 September, the Commercial Court in London confirmed that communications with the claimant’s Russian in-house lawyers were privileged as a matter of English law, and there was no need for the court to enquire into the applicable systems of regulation or professional standards under Russian law: PJSC Tatneft v Bogolyubov and others [2020] EWHC 2437 (Comm).

It has long been established that legal advice privilege under English law applies to advice from foreign lawyers, as well as English solicitors and barristers, so that such advice does not have to be disclosed in litigation before the English courts. What has been less clear to date, however, is whether there is any particular local standard of qualification or professional regulation a foreign lawyer must meet, such as admission to a local Bar, in order for their advice to benefit from the protection of privilege. The issue has been particularly acute for foreign in-house lawyers in jurisdictions where they cannot be members of the local Bar, as well as for lawyers working in private practice in jurisdictions where admission to the local Bar is not a prerequisite for legal practice.

The present decision helpfully confirms that advice from foreign lawyers, including foreign in-house lawyers, will be privileged as matter of English law, so long as the lawyer is acting in their professional capacity in connection with the provision of legal advice and irrespective of whether they are admitted to a local Bar or otherwise licenced. Continue reading

High Court holds auditor must form its own view on client’s claim to privilege when responding to its regulator’s notice to produce documents

The High Court has held that an auditor required to produce documents to its regulator, the Financial Reporting Council (“FRC”), must form its own view on whether documents are privileged and can therefore be withheld on that ground, regardless of whether the privilege is that of the auditor or its underlying client: A v B and another [2020] EWHC 1491 (Ch).

The court considered that the duty to disclose was on the auditor and disclosure could only be refused on the grounds that a document was actually privileged. Mere assertion of privilege by the client was insufficient.

In practical terms, where there is a dispute between a client and its auditor over whether documents are privileged, the client can seek an injunction prohibiting the auditor from disclosing the documents on the basis that the client’s privilege will be infringed (or the auditor could seek a declaration that documents are not privileged if the client is not engaging). The status of the documents will then be determined in those proceedings. The FRC will not necessarily be party to those proceedings, but can be joined if necessary.

Where, conversely, the auditor asserts the client’s privilege, the FRC can bring proceedings challenging the refusal to produce the documents and the court can, if necessary, join the client to the proceedings.

The decision presupposes that the client is made aware of the auditor’s intention to disclose. The judge considered it unrealistic to suggest that an auditor would not engage with its client before making disclosure in sufficient detail to enable the client to seek an injunction if it wished to do so.

This decision is also of relevance outside of the audit regulatory context, given that regulators’ powers to obtain documents are often subject to exceptions for privileged documents. Subject to any appeal, and the terms of the particular regulatory regime, the decision suggests that the regulated entity cannot refuse to produce documents on the grounds that a claim to privilege has been asserted or could be asserted by a client (or other third party to whom duties of confidentiality are owed); the regulated entity must take its own view on the privilege claim. Where it gets this wrong and discloses documents that are privileged, it will likely be in breach of its obligations to its client (or other third party). While there are ways of having the status of documents determined by the court, these are likely to be costly and time consuming.

Finally, the case is of interest in rejecting, in a separate judgment, most of A’s claim to privilege in respect of the disputed documents, including minutes prepared by a lawyer: A v B [2020] EWHC 1492 (Ch). Continue reading

Article published – Dealing with the COVID-19 pandemic: are your emails privileged?

The COVID-19 pandemic has brought with it huge challenges for businesses. While the focus has been on keeping business going, rather than the prospect of litigation in the future over decisions taken now, it seems inevitable that litigation will follow such a major disruption of the global economy.

Given that documents created now will be highly relevant in any such litigation, Anna Pertoldi has published a post on Practical Law’s Dispute Resolution blog which considers what will and will not need to be disclosed, and in particular, what documents will be privileged. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

Article published – Legal advice privilege: a dominant purpose test, but to what end?

The Court of Appeal’s recent decision in The Civil Aviation Authority v The Queen on the application of Jet2.com Ltd [2020] EWCA Civ 35 found that legal advice privilege (LAP) is subject to a “dominant purpose” test, and also considered how LAP applies in the context of multi-addressee emails which include both lawyers and non-lawyers as recipients.

Julian CopemanAnna Pertoldi and Maura McIntosh have published an article in PLC Magazine which considers the Jet2.com decision and its implications. Click here for a copy of the article, which first appeared in the March 2020 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine. Or click here for our previous blog post on the decision.

Court of Appeal finds regulator cannot demand production of client’s privileged documents unless statute overrides privilege

In a judgment handed down this morning, the Court of Appeal has held that an audit client was not required to hand over its privileged documents in response to a notice from its auditor’s regulator requiring the production of documents in connection with an investigation into the auditor’s conduct: Sports Direct International Plc v The Financial Reporting Council [2020] EWCA Civ 177.

The court overturned the High Court’s judgment in this case, which had found that the audit client’s privilege would not be infringed by requiring production (see our blog post on the first instance decision here).

The decision is helpful in reinforcing the protection of privilege in the regulatory context, whether the privilege belongs to the person who is subject to a regulatory investigation or a client of that person. In either case, privilege will be a defence to a notice requiring production of documents under a regulator’s statutory powers, unless the statute overrides privilege either expressly or by necessary implication.

The decision also confirms that privilege cannot be claimed for non-privileged documents merely because they are attached to privileged communications. The court rejected an attempt to distinguish between a non-privileged attachment and the communication of that attachment between lawyer and client. Continue reading

Our new Commercial Litigation Podcast Series

We have today launched our new series of commercial litigation update podcasts, looking at developments in civil procedure that will be of interest to in-house lawyers and others who deal with litigation in the English courts.

In this first episode we look at recent developments in disclosure and privilege. This episode is hosted by Anna Pertoldi, who is joined by Maura McIntosh and Chris Cox.

Our podcast is available on iTunes, Spotify and SoundCloud and can be accessed on all devices. A new episode will be released every couple of months. You can subscribe and be notified of all future episodes.

You can find links to our blog posts on the cases covered in this podcast below:

And here is a link to our most recent webinar on the disclosure pilot in the Business and Property Courts: The Disclosure Pilot – 10 months on: how is PD51U working in practice?

Anna Pertoldi
Anna Pertoldi
Partner
+44 20 7466 2399
Maura McIntosh
Maura McIntosh
Professional support consultant
+44 20 7466 2608
Christopher Cox
Christopher Cox
Senior associate
+44 20 7466 2203

Court of Appeal confirms instructions to law firm relating to escrow monies were privileged

The Court of Appeal has upheld a High Court decision which rejected an application for disclosure of documents containing a client’s instructions to its lawyers regarding the holding and transfer of escrow monies, in circumstances where the law firm had provided a confirmation to a counterparty as to the nature of its instructions:  Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd [2020] EWCA Civ 11. Our blog post on the first instance decision is here.

The decision confirms that where a client authorises a lawyer to make a statement to a third party as to the instructions he or she has received from the client, this does not, without more, give rise to a loss of confidentiality in the documents which contain or evidence the instructions. The question is whether the client has authorised the lawyer to disclose the underlying communications. This may of course be a fine line in some cases.

The Court of Appeal also held, by reference to Australian authority, that privilege will be waived if the client “puts in issue” the content of the instructions to the lawyer. This shows that privilege may be waived where a party puts the content of a privileged communication directly in issue, for example by alleging that a lawyer acted without the client’s authority in agreeing a settlement. This is in addition to the more familiar situation where a party deploys its privileged material in legal proceedings such that the principle of collateral waiver (or the “cherry picking rule”) comes into play. In practice, however, the two scenarios are likely to be closely linked: where a party puts its privileged communications directly in issue, it would seem inevitable that the communications will also be relied on in support of its case. Further, it is clear from previous authority that privilege will not be waived merely by putting in issue a matter to which a privileged communication is relevant, as opposed to putting in issue the content of the communication itself.

The Court of Appeal’s decision also helpfully illustrates the breadth of the communications that can be protected by legal advice privilege. The privilege covers the continuum of communications between solicitor and client, so long as they are directly related to the solicitor’s performance of his professional duty as legal adviser. There is no requirement to separate out communications which contain actual instructions or advice and those which do not. That remains the case despite the subsequent decision of the Court of Appeal in CAA v Jet2.com [2020] EWCA Civ 35 (on which we reported here) which found that legal advice privilege is subject to a “dominant purpose” test, ie that the dominant purpose of the relevant communication was to give or obtain legal advice in a broad sense. Continue reading

Court of Appeal finds legal advice privilege is subject to a “dominant purpose” test

In a decision handed down earlier this week, the Court of Appeal has found that legal advice privilege (LAP) is subject to a “dominant purpose” test, ie that in order to benefit from LAP it is necessary to show that the dominant purpose of a communication was to give or obtain legal advice: The Civil Aviation Authority v The Queen on the application of Jet2.com Ltd [2020] EWCA Civ 35.

That has long been the case for litigation privilege, where it is essential to show that a communication or document was prepared for the dominant purpose of contemplated litigation, but the question of whether LAP is subject to a dominant purpose test has been far more controversial. Whilst the judge at first instance had found that there was such a test, leading textbooks and obiter comments by the Court of Appeal in SFO v ENRC [2018] EWCA Civ 2006 (considered here) suggested there was no such test. The application of a dominant purpose test in connection with LAP has often been viewed as inconsistent with the broad protection afforded under the LAP head, which covers the whole continuum of communications between lawyer and client which take place in a relevant legal context, as confirmed by the House of Lords in Three Rivers No 6 [2004] UKHL 48 (and applied for example in the RBS v Property Alliance Group decision considered here).

There is however good news from the perspective of those seeking to obtain the protection of LAP for lawyer/client communications to seek or obtain legal advice. Despite finding in favour of a dominant purpose test for LAP, the Court of Appeal’s decision in this case does not significantly narrow down the protection of LAP as it was previously understood. The decision is clear that, where a lawyer is instructed in a relevant legal context, most communications between lawyer and client will be privileged. That is because, once there is a relevant legal context: (i) legal advice is widely defined, in that it is not limited to what the law is, but includes what should prudently and sensibly be done in the relevant legal context; and (ii) the protection includes communications aimed at keeping both lawyer and client informed so that advice may be sought and given as required. A particular document will not be privileged if it falls outside that legal context (and equally, part of a document will not be privileged if that part falls outside the legal context, assuming the parts can be separated out), but in general terms the protection of LAP should remain broad. Against that background, the dominant purpose test arguably does not add very much to the previous understanding of when LAP applies.

The decision also discusses the application of LAP in the context of emails sent to multiple addressees, including both lawyers and non-lawyers, particularly in an in-house setting. Unfortunately, the Court of Appeal’s discussion of this important area is not easy to follow.

  • The decision says that if the dominant purpose of the multi-addressee email is to settle the instructions to the lawyers, then (subject to the principle set out in Three Rivers No 5 – as to which see below) it will be privileged, whereas if the dominant purpose is to seek commercial views from the non-lawyer addressees, then it will not be privileged, even if a subsidiary purpose is simultaneously to obtain advice from the lawyer addressee(s).
  • That may be taken to suggest that, in the Court of Appeal’s view, the multi-addressee communication must be viewed as a whole and its overall purpose determined. However, shortly afterward, the decision states that the court’s “preferred view” is that each communication between the sender and each recipient should be considered separately, since LAP essentially attaches to communications and “it is difficult to see why the form of the request (in a single, multi-addressee email on the one hand, or in separate emails on the other) in itself should be relevant as to whether the communications to the non-lawyers should be privileged”.
  • Similarly, in the context of a meeting attended by lawyers and non-lawyers (where, the court said, the same principles should apply): “Legal advice requested and given at such a meeting would, of course, be privileged; but the mere presence of a lawyer, perhaps only on the off-chance that his or her legal input might be required, is insufficient to render the whole meeting the subject of LAP so that none of its contents (including any notes, minutes or record of the meeting) are disclosable.”

Overall, therefore, the analysis would appear to be that combining a privileged communication to a lawyer with a non-privileged communication to a non-lawyer (in a single email or in the same meeting) will not give the protection of privilege to the otherwise non-privileged communication.

The decision does contain some helpful discussion of the very narrow approach to who is the “client” for the purpose of LAP under English law, following the Court of Appeal decisions in Three Rivers No 5 and SFO v ENRC. Like the Court of Appeal in ENRC, the court said that if it had been free to do so it would have been “disinclined” to follow that approach. This adds to the weight of criticism of the Three Rivers No 5 approach at Court of Appeal level. However, any change to the law on that point will have to await a Supreme Court decision.

Intriguingly, there is some suggestion in the CAA v Jet2.com decision (including the discussion of multi-addressee emails referred to above) that the Court of Appeal was inclined to consider internal communications between non-lawyers to be privileged where they are for the dominant purpose of instructing the lawyer. It is not, however, clear precisely what scenario the court had in mind. In general, communications between non-lawyers will not be privileged under the LAP head (given that only lawyer/client communications are protected) save to the extent that they evidence the content of a privileged communication (or as the court put it in this case, if they “might realistically disclose” legal advice). Presumably the Court of Appeal’s comments need to be understood in that context. Continue reading