Julian Copeman charts the course of privilege through the Three Rivers cases and discovers there is still rough water ahead


The House of Lords handed down its much-anticipated judgment in the Three Rivers appeal concerning privilege last month (see [2004] Gazette, 18 November, 1). The uncertainty as to the scope of privilege caused by the Court of Appeal judgments in Three Rivers in 2003 (Three Rivers District Council v Governor and Company of the Bank of England (No.5) [2003] QB 1556) and 2004 (Three Rivers District Council v Governor and Company of the Bank of England (No. 6) [2004] QB 916) was of such concern as to lead to the intervention of the Attorney-General, the Law Society, and Bar Council in this appeal.



In July, the Lords had allowed the Bank of England's appeal from the appeal court's decision that 'presentational' advice did not amount to legal advice for the purpose of privilege, but without giving reasons.


Now we have the reasons, in which the Law Lords have unanimously rejected the court's reasoning and re-emphasised the right to seek legal advice in confidence.


However, despite being invited to comment on the earlier Court of Appeal decision, which was not formally subject to the appeal, but which had cast doubt on whether communications between a lawyer and the client's employees are covered by legal advice privilege, the Lords disappointingly declined to do so, leaving uncertainty as to whether companies can effectively rely on legal advice privilege.



Legal advice



The appeal to the House of Lords concerned the question of whether communications between the Bank of England and its legal advisers for advice and assistance in relation to the Bingham inquiry concerning the collapse of the Bank of Credit and Commerce International (BCCI) were protected by legal advice privilege.



The appeal court had held that legal advice privilege only protects advice as to legal rights and obligations, and that this did not include what it regarded as 'presentational' assistance in putting relevant factual material before the inquiry in an 'orderly and attractive fashion'. In doing so, the court substantially narrowed the scope of legal advice privilege, opening up the need for difficult considerations (also grappled with by the court this year in USA v Philip Morris [2004] EWCA Civ 330), as to whether a lawyer's retainer was for the dominant or primary purpose of genuine legal advice or of mere 'presentational' advice to determine what, if any, non-legal advice or communications would be protected as part of the 'continuum' of giving and getting genuine legal advice.



Furthermore, the Master of the Rolls, Lord Phillips, went so far as to voice doubts as to the justification for legal advice (as opposed to litigation) privilege, querying why it should apply to matters such as conveyancing or the preparation of a will.


In unanimously rejecting the appeal court's narrow application of legal advice privilege, the House of Lords has now taken the opportunity to reaffirm the public policy reasons for it. In comprehensive reviews of the authorities, both Lord Scott and Lord Carswell (who gave the two main speeches) stressed that the rationale for legal privilege is the need for a client to be able to seek advice from a lawyer with absolute candour, which is only possible where the lawyer can give unqualified assurance that whatever the client tells him in confidence will never be disclosed without his consent.


In drawing those conclusions, the Lords rejected the appeal court's doubts as to its justification, emphasised the absolute nature of privilege, and concluded that the court had failed to accord legal advice privilege a wide enough scope.



In determining the proper scope of legal advice privilege, Lord Scott referred to Balabel v Air India [1988] 1 Ch 317 (which was generally referred to with approval), and to Lord Justice Taylor's statement that legal advice includes 'advice as to what should prudently and sensibly be done in the relevant legal context'. While conceding that there would be marginal cases where it is difficult to determine whether the seeking or obtaining of advice took place in a relevant legal context such as to attract legal advice privilege, Lord Scott concluded that in cases of doubt, an objective test should be applied as to whether the advice relates to the 'rights, liabilities, obligations or remedies of the client either under private law or under public law'.



Lord Scott noted that the present circumstances of advice in relation to the Bingham inquiry were 'not in the least marginal'. The preparation of the evidence and the submissions to be made to the inquiry were for the purpose of enhancing the bank's prospects of persuading the inquiry that its discharge of its public law obligations under the banking acts in relation to BCCI had been reasonable.


Accordingly, although 'presentational', the advice was as to what should prudently and sensibly be done in the relevant legal context of the Bingham inquiry and the bank's public law duties under the banking acts. This fell 'squarely within the policy reasons underlying legal advice privilege'.


The other Lords made similar points as to the wide scope of legal advice privilege. Lord Rodger putting the test as 'whether the lawyers are being asked qua lawyers to provide legal advice', or more prosaically, whether they were being asked to 'put on legal spectacles'. Lord Carswell noted that 'presentational' advice of the type given to the bank was part of 'the classic exercise of one of the lawyer's skills', irrespective of the forum, provided that such advice is given in a legal context.



Lord Carswell went further in concluding that the principle affirmed in the earlier case of Minter v Priest [1929] 1 KB 655 remained applicable, that case having held that privilege applies to all advice within 'the ordinary scope of a solicitor's business', and therefore to all communications between a solicitor and client relating to a transaction in which the solicitor has been instructed to give legal advice, even if they do not contain advice on matters of law and construction, provided they are directly related to the performance by the solicitor of his professional duty as legal adviser.



In coming to these conclusions, the Lords made it clear that the reasoning would apply equally to coroners' inquests, statutory inquiries under the 1921 Act, or ad hoc inquiries, where an individual or company may be at risk of criticism and where the presentational skills of lawyers are 'unquestionably legal skills being applied in a relevant legal context'. Moreover, in re-affirming the policy reasons behind privilege, they emphasised that, contrary to the appeal court's comments, legal advice privilege should, and will, continue to apply to matters such as the drafting of wills or giving of tax advice for which full and frank disclosure of information to the legal adviser on a confidential basis is necessary.



Communications



In an earlier application in the same case, the appeal court held that legal advice privilege only protected communications between the legal advisers and the three-person Bingham inquiry unit (BIU) within the Bank of England, which was deemed to be the 'client'. It did not protect documents generated by employees of the bank for submission to, or which were in fact submitted to, the party's legal advisers, because the employees were in the same position as third parties or agents rather than being the lawyer's client.


It is worth noting that litigation privilege would have protected such 'third party' communications, the only difference between the two forms of privilege being that litigation privilege also covers communications with third parties for obtaining advice or evidence for the litigation.



The bank had accepted from the outset that litigation privilege did not apply because the Bingham inquiry was non-adversarial, and the House of Lords in Re L [1997] AC 16 restricted litigation privilege to adversarial proceedings. Lord Scott described the inquiry as having taken place 'under the shadow of potential judicial review', and arguments could be envisaged that adversarial litigation is always reasonably in prospect in inquiries such as this, so that litigation privilege should apply. Separately, Lords Scott and Rodger commented that Re L may need to be re-visited.



Permission to appeal the earlier appeal court decision had previously been refused, and it was not technically in issue on this appeal. However, given the concern expressed at the implications of that judgment, particularly for corporate clients who can only communicate with their lawyers through employees or officers, the Lords had been invited by the applicants, and by the Attorney-General, the Law Society and Bar Council, to clarify the approach that should be adopted to determine whether a communication between an employee and his employer's lawyers should be treated for legal advice privilege purposes as a communication between the lawyer and the client.



Unfortunately, the Lords have not done so. Lord Scott noted that in Three Rivers, disclosure has already been given pursuant to the appeal court judgment, so that the issue was moot. He also noted that it was a difficult issue with a dearth of domestic authority; that whatever views were expressed would not bind the lower courts; and that if the issue did come formally before the Lords, a different view might then be reached. Lord Scott stated that 'nothing that I have said should be construed either as approval or disapproval of the Court of Appeal's ruling on the issue'.



However, Lord Carswell stated that he saw 'considerable force' in the first instance judgment, which had found the employee documents to be privileged, and also that 'I am not to be taken to have approved of the [Court of Appeal's] decision... and I would reserve my position on its correctness'.


Whatever may be drawn from Lord Carswell's comment as to any future decision, and however welcome the re-affirmation of the importance and wide application of legal advice privilege, the law of privilege remains in an unsatisfactory state because companies and the courts are still faced with what Baroness Hale referred to as 'particular difficulties in identifying "the client" to whose communication privilege should attach'. Difficult issues will arise as to who can be regarded as the lawyer's 'client' whenever a company seeks advice from external legal advisers or in-house lawyers. This will hamper the efficient and cost-effective gathering of information for the purpose of obtaining legal advice, and will, if disputes later arise, encourage expensive satellite litigation concerning the appropriate disclosure.


It is to be hoped that the point rapidly finds its way to the Lords on a proper footing and is clarified. In the meantime, companies and their legal advisers will need to consider carefully who within the company can be viewed as the client, and to control communications between the lawyers and other employees.


Julian Copeman is a partner in the litigation and arbitration division at City-based law firm Herbert Smith