3rd January 2017
The High Court has revisited legal advice privilege and has reiterated its narrow scope. This important decision is essential reading for corporates and those involved in any dispute or in any regulatory or internal investigation. Walker Morris’ Head of Commercial Dispute Resolution Gwendoline Davies explains and offers her practical advice.
Privilege is a hugely valuable legal right. It entitles a client to withhold documents (including electronic communications) from a court or third party, without any adverse inferences being drawn.
There are important public policy justifications underpinning privilege, such as the need for clients to be able to candidly disclose matters to their lawyers; to enable lawyers to obtain, investigate, record and freely communicate to their clients information so that clients can make fully informed decisions; and, in the context of regulatory investigations, so that regulators can deal with experienced lawyers who can accurately advise their clients how to respond and cooperate, which in turn will advance public interest.
There are various different forms of privilege, including: litigation privilege, which arises where a document or communication has been created for the dominant purpose of existing or pending litigation; without prejudice privilege, which enables parties to conduct settlement negotiations without fear of prejudice in subsequent court proceedings; and common interest privilege, which can arise where a document is disclosed to a third party who has a common interest in the subject matter.
Another key form of legal professional privilege is legal advice privilege.
The following essential factors must exist for legal advice privilege to apply:
The second of these factors has given rise to some real controversy in the courts, and is the focus of a recent High Court case.
Following the Court of Appeal’s 2003 decision in the well-known Three Rivers (No. 5)  case, ‘client’, in this context, is very narrowly defined and will only cover those members of an organisation who are actually charged with instructing lawyers.
In the Three Rivers litigation, creditors of Bank of Credit and Commerce International sued the Bank of England for misfeasance in public office. A special inquiry unit, comprised of just three employees of the bank, was given responsibility for coordinating and communicating with the bank’s lawyers. The Court of Appeal held that the ‘client’ was limited to members of that unit. The reasoning was that it is in the public interest that courts should, wherever possible, come to judgments based on all relevant material and so legal advice privilege, which precludes disclosure to the court, should not extend beyond the confines properly necessary to facilitate the lawyer-client relationship.
That decision has led to much criticism, from both an academic and a practical perspective, because of difficulties that it provides for corporates. Information that a lawyer needs to gather in any given case or investigation might have to be compiled from various different employees across the business. Those employees may or may not fit within this very narrow definition of the ‘client’ and the risk that communications will not be privileged if they do not can severely hamper the investigation process. The Three Rivers (No. 5) approach has therefore been rejected in other common law jurisdictions, including Australia, Singapore and Hong Kong.
It has, however, been applied, and firmly reiterated, in a recent decision of the High Court of England and Wales, as part of the ongoing RBS Rights Issue Litigation .
In this case Mr Justice Hildyard acknowledged that there was some force in criticism of the Three Rivers (No. 5) approach and even noted that the Supreme Court may need to revisit the law of legal advice privilege. He did, however, consider that Three Rivers (No. 5) was binding on him and he concluded that the law clearly remains that:
In anticipation of the court finding that employees and ex-employees interviewed by its lawyer  did not fall within the narrow definition of ‘client’, RBS alternatively argued that the lawyer’s notes of those interviews were nevertheless privileged as they formed part of the lawyer’s working papers.
There was no dispute that a verbatim transcript of an unprivileged interview would not be privileged, nor that privilege protection would apply if the notes of the interview could indicate the content or direction of legal advice being given.
Concluding, however, that there is a significant difference between interview notes merely reflecting the note-takers’ line of enquiry or perception of particular points of interest, and them giving a clue as to legal advice, the High Court confirmed that:
This is an important, if unwelcome, decision for large organisations involved in a dispute or regulatory or internal investigation. It is a restatement of the law as per Three Rivers (No. 5) and it even extends the principle that legal advice privilege has a narrow ambit, by virtue of the judge’s confirmation that information given by [ex-]employees in an interview may not be privileged simply by virtue of it being provided to a lawyer or recorded in lawyer’s notes.
So what can commercial clients do?
We understand that RBS might well appeal this decision, and so it is possible that the law relating to legal advice privilege could be subject to further development soon. Walker Morris will monitor closely and report on any developments.
In the meantime, if you are faced with an investigation or any potential or ongoing dispute and wish to protect your important right of privilege, please do not hesitate to contact Gwendoline Davies or any member of the Commercial Dispute Resolution team.
 Three Rivers District Council & Ors v Governor & Co of the Bank of England  EWCA Civ 474
 A number of institutional investors are suing the bank for losses sustained after they invested in a rights issue in reliance upon an RBS prospectus which allegedly portrayed the bank’s financial health and stability in a more favourable light than was really the case. The judgment which is the subject of this briefing has citation  EWHC 3161 (Ch)
 as part of the business’ internal investigations