LPP to have and have not

Anthony Philpott tests legal professional privilege principles against recent case law as in-house lawyers become closer to business operations

In Ernest Hemmingway’s novel ‘To Have and Have Not’ the character of Harry Morgan captures the independence of the ‘man of action’ and the adversity he faces. 

Morgan is forced by dire economic pressures in the great depression to ferry illegal cargo in his fishing boat between Cuba and Florida. After a shoot-out with Cuban revolutionaries that set upon him, he lies dying and utters the final words ‘one man alone ain’t got, no matter how alone, ain’t got no bloody chance…’

With the recent explosion in the recruitment of in-house lawyers, there is trend towards the in-house lawyer becoming more involved in the business and to not stand alone. This suits the lawyer because there is an incentive in being seen by the board of the corporation as vital to the success of the business. In so doing the lawyer will avoid the perils faced by Harry Morgan in standing alone in the organisation. The down side of this is that the lawyer may lose the protection of LPP the closer he or she becomes to the business.

The rules of conduct of the lawyer underscore the notion of his or her professional independence. This concept was highlighted in the Enron collapse when in-house lawyers were caught up in the directors’ fraud in their concealment of losses from the company balance sheets, leading to criminal prosecution. Following Enron, in-house lawyers are expected to challenge company CEOs and ‘whistleblow’ if they become aware of corporate malpractice.

The notion of independence of the lawyer is brought into focus by the recent developments of the law of legal professional privilege (LPP). The more in-house lawyers become ‘business people’ the greater the risk that their communications will not be cloaked with LPP. They will lose this protection if they are seen to have been giving purely business rather than legal advice.

What is legal professional privilege?

LPP is designed to protect communications between lawyer and client from being passed and disclosed to third parties. It recognises the trust that must be created between lawyer and client that makes this relationship workable. The two recent cases of RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) and The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB) have further limited its scope. It is therefore essential that corporations pay heed to the narrow limits in which their communications with lawyers will be protected against disclosure. At the time of writing, the outcome of the appeal to the Court of Appeal against the High Court judgment in SFO v Eurasian is eagerly awaited by the professional as a whole.

What is legal advice privilege?

Legal advice privilege consists of written or oral communications between lawyer and client and not with third parties, for the dominant purpose of giving or getting legal advice. The lawyer’s client will receive this protection and only communications between the lawyer and individuals classified as ‘the client’ will be given the protection of legal advice privilege.

Rivers of privilege run deep

The decisions of the Court of Appeal and the House of Lords in Three Rivers District Council v Governor of The Bank of England [2002] EWHC 2730, [2004] UKHL 48 arose in the litigation between liquidators of the Bank (BCCI), that had collapsed with the huge excess of liabilities over assets, and the Bank of England, against which liquidators alleged misfeasance in public office, because the Bank of England failed in its supervisory duties.

Before the litigation arose, a special unit, the Bingham Inquiry Unit (BIU) was set up by the Bank of England to prepare submissions to the Bingham Inquiry. The liquidators of BCCI sought disclosure over internal communications between the Bank of England and the Inquiry. Freshfields solicitors and external counsel gave advice as to the preparation and presentation of information by the Bank of England to the Inquiry.

The lawyers for the liquidators argued that the dominant purpose of the communications was to assist the Bank of England in putting all factual information before the inquiry and they were not privileged. They argued that the dominant purpose was not the obtaining of the legal advice because the advice was merely ‘presentational’.

The Court of Appeal decided that the dominant role of the lawyers was to advise merely on the preparation and presentation of the Bank’s evidence to the inquiry in the least likely way to attract criticism of it. As such it was not advice on ‘legal rights and responsibilities’ and was therefore not privileged.

The House of Lords reversed the Court of Appeal on the question of ‘presentational advice’. The House of Lords decided that ‘presentational advice’ was advice as to ‘rights and obligations’. Therefore, it was protected by legal advice privilege. The skill of lawyers in presenting evidence was advice ‘in the relevant context’ and therefore protected by legal advice privilege.

Who is the client?

Who then is the client whose communications are protected by LPP? The court decided (in the case of BIU) that only a small number of employees could be considered to be ‘the client’, rather than any single officer.

This means that documents prepared by employees of the corporation other than ‘the client’ may not be privileged. Such employees are regarded as third parties and their communications are not privileged. Therefore, to establish the identity of ‘the client’, corporations should set up committees to include Board Directors and any person given a particular task on the issue upon which legal advice is sought.

The conclusions to be drawn from the Three Rivers litigation are as follows:

  1. It is important to record and list the few individuals in the corporation who are to be ‘the client’.
  2. Explicit reference to advice as to the clients’ rights and responsibilities should be made in the legal advice.
  3. In giving commercial advice explicit reference should be made to substantive rights and obligations. For example, the terms of the contract that is the subject of the advice.
  4. Strategic, presentational and commercial advice will only be privileged if it is given in the context of legal advice given on a freestanding basis, otherwise it will not be privileged.
  5. Marking the document with the following wording will not make the documents privileged but will limit the author to the giving of advice on legal rights and obligations and prevent the unwanted dissemination of the document: ‘legally privileged and confidential prepared for the purpose of obtaining advice in relation to rights and obligations. Not to be forwarded without express consent of the legal department or external lawyers.’

Narrowing the limits of LPP

In the RBS Rights Issue Litigation [2016] EWHC 3161 the Royal Bank of Scotland claimed privilege of documents including interview of employees in a whistleblowing investigation by the Securities and Exchange Commission relating to sub-prime lending. RBS claimed legal advice privilege against disclosure of interview notes or claimed that the Interview Notes are lawyer’s privileged working papers.

In following the Three Rivers (No 5) decision of the Court of Appeal, the court decided that information gathered from an employee is no different from information gathered from third parties, even if so that it can be shown to a solicitor to enable legal advice to be given to ‘the client’. The interview notes were not privileged because they were preparatory information for the purpose of enabling RBS through its directors, or other persons authorised to do so on their behalf, to seek and receive legal advice. The interview notes were not communications between client and lawyer and were therefore not privileged.

Litigation privilege

Litigation privilege protects communications between lawyer and client, or between either of them to a third party, against disclosure if it is for the dominant purpose of litigation that is either pending or reasonably contemplated.

In SFO v Eurasian, the SFO applied for disclosure of documents generated by the defendant’s solicitors and forensic accountants into activities of the defendant (ENRC) who had self-reported to the SFO alleged bribery and corruption of a subsidiary in Kazakhstan and Africa. The documents related to a large number of witnesses interviewed. The court decided that none of these documents were protected by litigation privilege and that they had to be disclosed.

The criminal investigation of the SFO was not adversarial litigation. It was merely a preliminary step before the decision to prosecute had been taken. A mere general apprehension of possible criminal proceedings is not enough for litigation privilege to apply.

The court decided that if a lawyer carries out fact-finding investigation by speaking to employees of the corporation these would not be privileged merely because he was obtaining the information from them in order to give legal advice to their employer. It would be different if the ‘client’ delegated the responsibility for obtaining the legal advice to a senior employee or group of employees, such as the BIU in the Three Rivers case who then communicated with the lawyers for that purpose.

Critical difference between civil and criminal

However, the court highlighted a critical difference between civil proceedings and criminal proceedings in that civil proceedings can be commenced even when they are unfounded, whereas criminal proceedings cannot be commenced unless there is a sufficient evidential basis for them. The judge’s distinction between criminal and civil litigation suggest that litigation privilege may be more difficult to claim in criminal litigation than in civil litigation.

Lawyers’ notes and papers

The SFO v Eurasian decision confirmed the established principle that the protection of LPP will only apply if they would betray the tenor of the legal advice. This means that a verbatim note of what the lawyer was told by a prospective witness is not a privileged document. Simply because the lawyer has interviewed the witness with a view to using that information as a basis for advising the client will not make it privileged.

The lawyers’ notes of the interviews had to be disclosed and the court concluded that a document such as a witness statement is not privileged just because a lawyer has created it.

It will be necessary for corporations to observe the parameters that have been created by the courts to circumscribe the circumstances when LPP will operate, so as to prevent disclosure of its’ communications and documentation.

This will mean that they will create internal procedures and protocols in order to bring their communications and documents within these parameters so as to ensure that they are privileged. Inevitably this will require the input of lawyers to assist in creating these procedures and protocols. In-house lawyers, in particular, may benefit from being aware of the impact flowing from the narrowing of privileged communications, as they become ever closer to the business in their attempts to escape the fate that befell Harry Morgan. 

Contributor Anthony Philpott is a barrister at 12 Old Square, Lincoln’s Inn

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Anthony Philpott

Anthony, MSc King’s College in Construction Law and Arbitration, practises at 12 Old Square Chambers and is a construction lawyer. He spent 11 years as legal counsel with Bovis Lend Lease, a construction and project management multi-national.