Disclosure Pilot: High Court clarifies transitional operation and considers privilege claims

The High Court has confirmed that the Disclosure Pilot operating in the Business and Property Courts since 1 January 2019 applies to all proceedings currently on foot in those courts (apart from those specifically excluded), regardless of whether orders for disclosure were made prior to that date. Accordingly, any applications for further orders regarding disclosure will be dealt with under the new rules contained in Practice Direction 51U (PD51U): UTB LLC V Sheffield United Ltd & others [2019] EWHC 914 (Ch). 

With regard to privilege challenges, the decision suggests that the wording of the new rules gives added force to the general rule that judges should be cautious about agreeing to inspect documents in order to test whether privilege has been properly asserted (although in some cases, such as here, it may still be considered appropriate).

The decision is also an interesting example of a case where privilege was claimed in respect of communications with a lawyer who was also acting as the client’s “man of business”, alongside his legal role. It illustrates that the existence of such dual roles will not preclude claims of privilege over those communications that satisfy the test of having been made in a relevant legal context. However, it will be necessary to satisfy the court that those carrying out the disclosure review exercise were astute to the need to distinguish such communications from those that took place in a business advisory context, which will not be privileged. Continue reading

High Court upholds claim to privilege in respect of underlying instructions to law firm relating to escrow monies

The High Court has rejected an application for disclosure of documents containing the underlying instructions to a law firm acting for a party funding a transaction, in circumstances where the law firm provided a confirmation to the seller as to the nature of its irrevocable instructions regarding escrow monies: Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd [2019] EWHC 3 (Comm).

The court rejected an argument that the instructions were not confidential, or that privilege had been waived, because the client had authorised the law firm to state what instructions it had been given. The judge emphasised that underlying instructions do not cease to be confidential just because the client authorises the solicitor to divulge information it has received in confidential communications from the client. The question is whether the client has given the solicitor authority to disclose the underlying communications.

Caution is needed however. It may be difficult to distinguish between cases where the client has given the solicitor authority to disclose the underlying communications and cases where it has merely authorised the solicitor to divulge information received from the client without disclosing the underlying communications. Particular care should also be taken where a party is considering referring to lawyer/client communications in the context of legal proceedings. If the court finds that the underlying privileged material is being deployed in the proceedings it may order those communications to be disclosed along with any other documents relevant to that issue, under the principle of collateral waiver or the “cherry picking rule”.

The decision also illustrates the broad protection which can be afforded to lawyer/client communications under the head of legal advice privilege. The privilege is not limited to requests for legal advice or the provision of advice, but will include the entire continuum of communications between solicitor and client relating to a transaction in which the solicitor has been instructed, provided that they are directly related to the solicitor’s performance of his professional duty as legal adviser. Here that principle meant that instructions regarding the holding and transfer of escrow monies were privileged, even if they did not contain advice on matters of law. Continue reading

Information gathering by in-house lawyer in order to obtain external advice may not be protected by legal advice privilege

In a recent decision, the High Court has held that an in-house lawyer’s communications with an employee of the business, who was accepted to be her in-house “client” for some purposes, were not protected by legal advice privilege where those communications were to seek and obtain information to provide to external solicitors in order to obtain their legal advice: Glaxo Wellcome UK Ltd v Sandoz Ltd [2018] EWHC 2747 (Ch). In doing so, Chief Master Marsh applied the narrow interpretation of “client” established by the notorious Three Rivers No 5 decision as recently confirmed by the Court of Appeal (albeit with reluctance) in the ENRC case (considered here).

Significantly, the decision illustrates that an individual can be a lawyer’s “client”, and therefore entitled to communicate information to the lawyer under protection of privilege, for one purpose but not others.

The decision underlines the importance of considering, in any given context, who is likely to be considered the lawyer’s “client” for that particular purpose. Where an external lawyer is advising, and the in-house lawyer is the relevant “client” for that purpose, the in-house lawyer’s internal information gathering exercise may not be privileged (unless litigation privilege applies, as in that context a lawyer/client communication is not essential). The position may be different where the in-house lawyer’s advice is sought in addition to that of the external lawyer.

The decision also contains important messages as to how evidence should be presented in supporting a claim to privilege. Continue reading

Article published – ENRC privilege decision: welcome news but difficulties remain

The Court of Appeal’s recent decision in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006 (ENRC) has, helpfully, departed from the High Court’s overly strict approach to questions of litigation privilege. However, it has left intact the problematic approach to the question of who is the “client” for the purposes of legal advice privilege, derived from the Court of Appeal’s notorious 2003 decision in Three Rivers No 5, as interpreted in more recent case law. It is now clear, therefore, that any change to the law in this area will be a matter for the Supreme Court.

Julian Copeman, Anna Pertoldi and Maura McIntosh have published an article in PLC Magazine which considers the ENRC decision and its implications. Click here for a copy of the article, which first appeared in the October 2018 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine.

Privilege no defence to notice requiring production of client’s privileged documents to regulator

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor’s conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client’s privilege. Accordingly, the fact that documents are subject to a client’s privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

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Court of Appeal decision in ENRC: orthodoxy restored on litigation privilege, but narrow interpretation of “client” remains for now

The Court of Appeal has today handed down its eagerly awaited decision in the ENRC appeal: The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006. At first instance, the High Court took a restrictive approach to both litigation privilege and legal advice privilege (see our summary of the decision here). The Court of Appeal has allowed the appeal on the question of litigation privilege but has, with apparent reluctance, dismissed the appeal on legal advice privilege, concluding it is a matter for the Supreme Court.

In relation to litigation privilege, the Court of Appeal has, helpfully, disagreed with the High Court’s overly strict approach to whether documents have been prepared for the dominant purpose of litigation. The High Court found that, where ENRC’s purpose was to investigate allegations made by a whistleblower, this was not sufficient to meet the dominant purpose test. The Court of Appeal disagreed, finding that this was all part and parcel of preventing or defending litigation. It also disagreed with the High Court’s problematic view that documents prepared in order to avoid contemplated litigation were not covered by litigation privilege. In the Court of Appeal’s judgment, the purpose of avoiding or settling proceedings is covered by litigation privilege, just as the purpose of resisting or defending them.

In relation to legal advice privilege, the Court of Appeal considered itself bound by Three Rivers No 5 to find that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. In other words, it agreed with the judge’s interpretation of the effect of Three Rivers No 5 [2003] QB 1556, as also arrived at by Hildyard J in the The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here).

However, the court said that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so. This was in part because, in the Court of Appeal’s view, the decision puts large corporations at a disadvantage, when it comes to legal advice privilege, compared to individuals and small corporations. Those tasked with seeking legal advice on behalf of a large corporation are less likely to have the relevant factual information, and will therefore have to rely on employees whose communications with the lawyers will not, on the reasoning in Three Rivers No 5, be covered by privilege (unless litigation privilege applies). The Court of Appeal also accepted that English law is out of step with international common law on this issue, which it considered undesirable. However, it said the matter would have to be considered again by the Supreme Court in this or an appropriate future case.

Julian Copeman, Anna Pertoldi and Maura McIntosh consider the decision further below. Continue reading

A reminder that inadvertent disclosure of privileged material will not engage the cherry picking rule

The Administrative Court has held that a defendant did not lose privilege in unredacted passages of documents that had been provided for inspection, as it was obvious that the passages had been inadvertently disclosed, and that there was no question of a wider waiver of privilege as the material had not been deliberately deployed: Belhaj v Director of Public Prosecutions [2018] EWHC 514 (Admin).

Where a party to litigation deploys privileged material to support its case on the merits, the “cherry picking” rule (or the principle of collateral waiver) may result in a wider waiver than intended; the court may require disclosure of further privileged material to avoid unfairness or misunderstanding of the material disclosed.

The present decision is a reminder that the “cherry picking” rule has no part to play outside the context of a deliberate deployment of privileged material. Where privileged material is inadvertently provided for inspection, and the mistake is not obvious, this is likely to result in a loss of privilege in respect of that material. However, the loss of privilege will be limited to the material disclosed and will not extend to other privileged material which has not been provided. Continue reading

Court of Appeal finds that factual information received by solicitor in course of acting for client was not privileged

In a recent decision, the Court of Appeal held that a solicitor could not object on grounds of privilege to giving evidence, where the questions related to factual information received by the solicitor from third parties in the course of acting for his client: Kerman v Akhmedova [2018] EWCA Civ 307.

The decision is based, at least in part, on the well-established principle that communications with a third party are not covered by legal advice privilege, which is confined to lawyer / client communications for the purpose of giving or obtaining legal advice. Third party communications can only be privileged, if at all, under litigation privilege, which applies to documents or communications prepared for the dominant purpose of litigation which is in reasonable contemplation. Here, the information in question was obtained by the solicitor from third parties, and did not relate to contemplated litigation. Accordingly, there was no basis for a claim to privilege.

The Court of Appeal’s decision appears to go further, however, suggesting that a solicitor cannot refuse to answer questions on grounds of privilege where the client would not be able to do so. That statement is uncontroversial if it is limited to where, as in this case, the information is obtained from third parties in circumstances where litigation privilege is not available. If however it is intended to include situations where the solicitor has obtained the information solely by means of a privileged communication from the client, that is a much more contentious proposition, going beyond authorities to date, and would appear to risk undermining the privilege. Continue reading

High Court finds privilege applies to documents from which the substance of legal advice can be inferred

In a recent decision, the High Court has considered the question of when a document will be privileged on the basis that it “evidences” a privileged communication and has taken a more liberal approach than previous case law suggested: In the matter of Edwardian Group Ltd [2017] EWHC 2805 (Ch).

The court declined to follow the decision in Financial Services Compensation Scheme Ltd v Abbey National Treasury Services plc [2007] EWHC 2868 (Ch) (“FSCS”) in which the court had held that privilege does not attach to documents which merely allow advice to be inferred, rather than stating the substance of the advice. In the present case, the court considered the FSCS decision to be inconsistent with other authorities to the effect that documents will be privileged if they “give a clue to” or “betray the trend of” legal advice, and concluded that those authorities should be applied instead.

This does not mean, however, that privilege can be claimed for any document which supports an inference – however indirect – about the substance of legal advice. The contents of the document must provide a “definite and reasonable foundation” for the suggested inference. It is not enough that the document would prompt speculation about the advice. Continue reading

High Court decision takes restrictive approach to both litigation privilege and legal advice privilege

A High Court decision earlier this week has applied a strict approach to litigation privilege in the context of criminal proceedings, finding that litigation was not in reasonable contemplation (so the first limb of the test for litigation privilege was not met) even though a criminal investigation by the SFO was reasonably contemplated: SFO v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB). 

The decision suggests it is likely to be easier to establish that litigation is in reasonable contemplation in the context of civil proceedings than criminal proceedings. However, the decision contains unhelpful comments regarding the second limb of the test for litigation privilege – whether a document has been prepared for the dominant purpose of litigation – which would appear to apply equally to civil proceedings. The decision also endorses a restrictive view of who is the "client" for legal advice privilege, as recently applied by the High Court in the RBS Rights Issue Litigation (see our blog post on that decision here):

Key points of interest arising from the present decision include:

  • The court found that the test of whether litigation is in reasonable contemplation is not met just because a criminal investigation is contemplated. Only a prosecution, not an investigation, amounts to "litigation" for these purposes, and the contemplation of a criminal investigation does not necessarily equate to the contemplation of a prosecution. Prosecution only becomes a real prospect once it is discovered there is some truth in the allegations, or at least some material to support them.
  • The court commented that the situation is different for civil proceedings. There may be reasonable grounds to contemplate that litigation will be commenced by (say) a commercial counterparty even where there is no proper foundation for a claim. In contrast, criminal proceedings cannot be brought unless the prosecutor is satisfied that there is a sufficient evidential basis for prosecution. It is therefore likely to be easier to establish the first limb of the test for litigation privilege in the civil context.
  • The decision takes a strict approach to whether documents have been prepared for the dominant purpose of litigation, finding that even if litigation was in reasonable contemplation at the time the documents in question in this case were prepared, they were not prepared for the purpose of that litigation. The court found that the primary purpose here was to find out if there was any truth in allegations made by a whistleblower and (if there was) to decide what to do about it, and this was not sufficient.
  • Even if the purpose was to obtain advice in relation to a criminal investigation and minimise the risk of it happening, the court said this would not mean the documents were covered by litigation privilege. The court accepted that the purpose of conducting litigation includes the settlement of litigation once it is in train. However, it rejected the submission that litigation privilege extends to documents created to obtain legal advice as to how best to avoid contemplated litigation, even if that entailed seeking to settle the dispute before proceedings were issued. This seems a fine distinction, and an arbitrary one, which may give rise to significant problems in practice.
  • The court rejected an alternative claim for legal advice privilege over certain of the documents, which comprised lawyers' notes of interviews with their clients' employees, on the basis that there was no evidence that the interviewees were authorised to seek and receive legal advice on behalf of the client company. The decision strongly endorses the narrow approach to the question of who is the "client" for the purposes of legal advice privilege (as applied in the RBS case) which excludes those who are authorised only to communicate relevant facts to the lawyers, rather than seeking and obtaining advice on the company's behalf. The court comments that the decision in RBS is "plainly right" and there is no justification for departing from it. It does not however endorse the judge's obiter suggestion in RBS that the "client" may be restricted even further to comprise only those who are the "directing mind and will" of the organisation.
  • The court also rejected an argument that the lawyers' notes were privileged on the basis that they were lawyers' working papers, endorsing the decision in RBS that lawyers' working papers are privileged only if they would betray the trend of the legal advice.
  • The court accepted that a lawyer's summary of the facts, including information in the public domain, will be privileged if it is part of the continuum of communications between solicitor and client for the purpose of giving or receiving legal advice. This is consistent with the High Court's decision in PAG v RBS [2015] EWHC 3187 (Ch) (considered here).
  • The decision suggests that privilege is unlikely to attach to communications with individuals who are qualified lawyers but are not employed in a legal role, even if they are in fact giving legal advice. Here privilege was denied to advice given by ENRC's Head of Mergers and Acquisitions, even though he was a qualified lawyer, had previously been ENRC's General Counsel, and subsequently reverted to that role.   

According to press reports, ENRC has said it will appeal against the decision. James Norris-Jones, Rod Fletcher and Maura McIntosh consider the decision further below.

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