Clipping the wings of legal advice privilege: who is the ‘client’?

The RBS Rights Issue Litigation [08.12.16]

The High Court applies a narrow interpretation of legal advice privilege in order to determine who the ‘client’ is.

In the absence of litigation, or reasonably contemplated litigation, legal advice privilege is available to a client in respect of communication, which exists for the purpose of giving or receiving advice between lawyers and their client(s). This ensures that the communication remains confidential and can be withheld from a third party or the court. This allows clients to communicate freely with their lawyers without the risk of the communications being disclosed. Up until recently it was considered that the scope of legal advice privilege meant that all communications between employees of a company and the company’s lawyers would be privileged. This is not now always the case.

The Three Rivers (No 5) decision

In 2003 the Court of Appeal narrowed the scope of legal advice privilege (Three Rivers District Council v Bank of England (No.5) [2003]). It held that communications made to lawyers by an employee of a client company could stand in the same position as those made by an independent third party and they may not be privileged. This decision was heavily criticised and despite a number of legal bodies making representations to the House of Lords, it remains good law.

In Astex Therapeutics Ltd v Astrazeneca AB [2016] Chief Master Marsh gave an indication of things to come when he applied Three Rivers (No 5) in concluding that certain employees were not part of the ‘client’ for privilege purposes.

RBS Rights Issue Litigation

The litigation concerns a rights issue of shares n the Royal Bank of Scotland (RBS), which was taken up between May and June 2008. The actions are due to be heard in March 2017.

Of the interlocutory issues considered, of particular importance was whether notes of interviews conducted by RBS (by their in-house and external lawyers) with its employees are covered by legal advice privilege. RBS sought to distinguish the facts from Three Rivers (No 5).

Whilst Mr Justice Hildyard acknowledged that the facts of Three Rivers (No 5) were out of the ordinary, he noted that “the reasoning in Three Rivers (No 5) must be treated as resting on principles of general application” and, as such, the case could not be distinguished.

RBS’s alternative case was that the notes of interviews were privileged because they fell within the category of ‘lawyers’ working papers’.

Decision

In determining who is and who is not to be treated as a ‘client’ (or a recognised emanation of a ‘client’), Hildyard J clarified that those “authorised to give instructions” on behalf of the company did not mean employees who had the company’s permission to provide information to lawyers. In the alternative, such authority is a “reference to a person authorised to seek legal advice by way of instructions on the corporation’s behalf, whether as a matter of corporate governance or by express provision”. As such, legal advice privilege does not extend to information provided by employees and ex-employees to or for the purpose of being placed before a lawyer. The legal advice that eventually follows will be privileged but the preparatory steps are not. 

Hildyard J also treated RBS’s alternative case narrowly and held that for the argument to succeed, a party must be able to demonstrate that the documentation has “some attribute or addition such as to betray or at least give a clue as to the trend of the advice being given to a client by its lawyer” (our emphasis added). Privilege will not therefore attach to verbatim transcripts. The burden would be on the party seeking to rely on privilege to demonstrate that they went beyond this. 

RBS have indicated that they are likely to appeal the decision. 

Comment

The narrow interpretation of legal advice privilege has important ramifications for businesses offering legal advice. It is clear that fact notes taken by lawyers do not attract privilege. Serious consideration is therefore needed on each occasion advice is offered to determine (i) who is the client (i.e. who should be receiving legal advice) and (ii) what notes should be taken and how should they be recorded. 

Going forward, lawyers should ensure that any notes taken during a fact finding investigation are disbursed with legal advice to try to ensure that it attracts legal advice privilege. Alternatively, consideration should be given to obtaining witness statements from employees at an early stage to ensure privilege attracts to the documents.