In brow-mopping mode

This Government has done much this last seven years to regulate business freedom, particularly in the construction industry, as well as adding huge millstones to business necks in the name of tackling payment, tax evasion, health and safety, employment, ‘human rights’, law and order, inequality and a whole lot more.

It is said there are now 15 new regulations created per day. The amount of regulation coming in over the last five years has, roughly speaking, equalled that of the previous 25.

This piece is not a civil liberties cry. What I want to share with you is really important, it is to do with something sacred to client and lawyer. It has been with us 400 years and it has been under the microscope as one of the final death throws of the BCCI litigation. It is a client’s right to refuse to disclose confidential information passing between itself and its lawyers. The House of Lords’ case in point is Three Rivers Council and Others v The Governor of the Bank of England. It has declared in what circumstances individuals or corporations can refuse to disclose confidential documents to third parties by claiming legal professional privilege.

You will recall BCCI failed calamitously in July 1991, with huge liabilities. BCCI's depositors and shareholders stood to lose all. Under the Banking Acts, the Bank of England had a supervisory role in relation to banks and those transacting business in the UK. Soon the finger was pointing at the Bank as to the performance of its role. To quell those concerns it was announced in Parliament that Lord Justice Bingham would be appointed to head up an independent enquiry into the Bank’s supervision of BCCI.

The Bank engaged lawyers and the Bank set up its own internal unit, the 'Bingham Enquiry Unit' (BEU), to respond to the enquiry. Bingham's report was published at the end of 1992. A few ruffled feathers remained. Within a short time thousands of depositors of BCCI had started proceedings against the Bank for the losses they had incurred as a result of the BCCI collapse.

In order to succeed against the Bank they would have to show not merely that the Bank had negligently performed its supervisory duties towards BCCI, but was guilty of bad faith in its office.

So the claimants sought the widest disclosure of documents from the Bank during the period when the Bank was preparing its case for presentation to the enquiry to assist them in establishing bad faith, including documents exchanged between Bank employees, the BEU and its lawyers. The Bank maintained that any documents created for the purpose of dealing with the enquiry should be regarded as confidential and that it was entitled to claim legal professional privilege protecting them from disclosure. There was one hell of a fight.

At this point I should just say, in litigation or other adversarial proceedings, a party is entitled to refuse to produce for inspection ‘privileged’ documents in its power, possession and control. The main category of privilege is legal professional privilege. There are two types of legal professional privilege: legal advice privilege and litigation privilege. Legal advice privilege protects communications between a lawyer in his professional capacity and his client, provided they are confidential and are for the purposes of seeking or giving legal advice. Documents sent to or from an independent third party (even if created with the dominant purpose of obtaining legal advice) are not covered by this privilege. Litigation privilege arises only after litigation or other adversarial proceedings are commenced or contemplated. It is wider than legal advice privilege and protects all documents produced for the sole or dominant purpose of the litigation, including all communications between (i) a lawyer and his client (ii) a lawyer and his non-professional agent or (iii) a lawyer and a third party.

The Bank recognised that in the context of the Bingham Enquiry it could not claim litigation privilege. It claimed, however, that legal advice privilege should apply to all confidential communications with the enquiry.

Eighteen months ago the Court of Appeal gave judgment concerning the nature of documents to which the Bank could claim legal advice privilege. It caused an outcry, the Court adopted a narrow interpretation and that included who was the ‘client’. The Court decided that legal advice privilege was restricted to advice about legal rights and liabilities. Thus the Bank's lawyers had provided advice to the Bank on how best to present its evidence to the Bingham Enquiry, which advice was not in strict sense legal advice and so not privileged.

Such was the importance of this decision that The Law Society, Bar Council and Attorney General were all granted leave to intervene in the appeal. Then sanity. On 11 November 2004 the House of Lords overruled the Court of Appeal. It declared where the Bank's lawyers were providing “presentational advice” to the Bank on how to submit evidence to the enquiry, such advice continued to be legal advice to which privilege attached. It was noted, “legal advice is not confined to telling the client the law. It must include advice as to what should prudently and sensibly be done in the relevant legal context.”

Lord Scott said it was: “necessary in our society, in which the restraining and controlling framework is built upon a belief in the rule of the law, that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyer's legal skills in the management of their affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busy-bodies or anybody else.”

So advice given by a lawyer will be protected by legal advice privilege if it is provided in a "relevant legal context". In determining this, one should ask oneself whether the lawyer was wearing his "legal spectacles" or was acting as a "man of business". If a solicitor advises his client on matters of business such as investment policy and finance policy, the advice will lack the relevant legal context.

In marginal cases, Lord Scott set out a clear two-stage test, which asks if the advice relates to rights, liabilities, obligations or remedies of the client either under private law or under public law. (a) If it does not then legal advice privilege would not apply, and (b) if it does, the advice will only be covered if it falls within the policy underlying the justification for legal advice privilege in English law. The test to be applied is an objective one.

Hoorah for freedom - legal advice privilege has been confirmed in this decision. However, we lawyers are less content that the House of Lords failed to grapple with another key point made by the Court of Appeal. An earlier decision of the Court of Appeal (not the subject of this particular appeal to the Lords) had decided that in the context of large organisations, the "client" (in applying the test for legal advice privilege) will include only a specified collection of individuals (in this case, the three members of the BEU) responsible for day-to-day communication with the lawyers. This was considered highly unsatisfactory and the House of Lords was invited to express an opinion on this issue.

Unfortunately, and despite acknowledging that the issue was of particular importance for corporate clients who can only communicate through employees or officers, the House of Lords declined (on technical grounds) to do so. But some comfort may be drawn perhaps from what Lord Carswell said, as at least he made his views clear:
" I do not propose to express any opinion on [Three Rivers (No. 5)]. Having said that, I am not to be taken to have approved of the decision … and I would reserve my position on its correctness."
The practical implications of the narrow definition of the “client” remain to be worked through in future court decisions. It is, however, clear that particular care must be exercised in relation to communications with employees where it is not clear which of them constitutes the “client”. Until the courts have provided further guidance, the following practical steps may increase the chances of a successful claim for legal advice privilege being made:

• External solicitors should consider limiting their communications only to those corporate individuals responsible for obtaining the advice.
• Consider structuring the chain of communications so that an in-house lawyer gives advice within the company and seeks advice from the external lawyer.
• Where practicable, consider formally identifying a unit within the client company whose members comprise everyone within the company who has the material facts. The unit will then be responsible for the conduct of the transaction, including seeking and obtaining legal advice.
• If there are employees outside the unit who have material information or who need to be kept informed, consider arranging their attendance at meetings between the client unit and lawyers in order to avoid unnecessary separate communications.

Lastly, l do not mention the effect the Proceeds of Crime Act has had on this area of the law, no one really knows.