Maintaining Legal Advice Privilege - Many Rivers to Cross

Article by Barry Donnelly and Bruce J. Lincoln

In the most recent decision arising out of the case of Three Rivers District Council and BCCI SA v. The Governor and the Company of the Bank of England [2003] EWHC 2565 (4 November 2003), it has been necessary for the Court to clarify the meaning of "legal advice" following (and despite) the extensive analysis of legal advice privilege by the Court of Appeal earlier this year ([2003] EWCA Civ 474).

In the Court of Appeal, the BCCI Liquidators had sought disclosure of communications between the Bank of England's specially appointed Bingham Inquiry Unit ("BIU" -3 Bank of England officials) and the Bingham Inquiry itself (a non-statutory private inquiry into the supervision of BCCI under the Banking Acts). The BIU's communications with the inquiry were the subject of advice from the Bank of England's external legal advisers, and the Liquidators accepted that the BIU constituted the client for the purposes of the inquiry.

The Court of Appeal declared that the only documents or parts of documents coming into the Bank's possession between the closure of BCCI on 5 July 1991 and the issue of the present proceedings in May 1992, which the Bank was entitled to withhold from inspection on the ground of legal advice privilege, were:

communications passing between the Bank (through the BIU) and its legal advisers (including any solicitor seconded to the Bank) for the purposes of seeking or obtaining legal advice;

any part of a document which evidenced the substance of such a communication.

A further separate aspect of the decision was that documents such as internal memoranda prepared by employees but not the BIU (including those prepared for submission to or at the direction of the Bank's lawyers) did not satisfy the "dominant purpose" test, where they were prepared for the dominant purpose of putting relevant factual material before the inquiry and not for the dominant purpose of taking legal advice.

Therefore, legal advice privilege was confined to client/lawyer (BIU/external legal adviser) communications and not internal (employee/BIU) communications, even if prepared for the dominant purpose of being shown by or sent by the BIU to external lawyers or prepared at the request of external lawyers.

Four classes of documents prepared by employees but not the BIU were held not to be privileged:

documents prepared by Bank employees, which were intended to be sent to and were in fact sent to the Bank's lawyers;

documents prepared by Bank employees with the dominant purpose of the Bank obtaining legal advice but not, in fact, sent to the Bank's lawyers;

documents prepared by Bank employees, without the dominant purpose of obtaining legal advice, but in fact sent to the Bank's lawyers;

any of the above documents prepared by Bank employees who had become ex-employees of the Bank.

In its judgment, the Court of Appeal left hanging the question of whether assistance by external lawyers in the presentation of their client's case, constituted "legal advice" in the sense in which the phrase is used when referring to privilege claimed for legal advice. This in turn led to a subsequent dispute between the parties as to what the Court of Appeal meant by "legal advice" and it therefore fell to Mr Justice Tomlinson to consider this issue.

The BCCI Liquidators accepted that they should perhaps have made it clear to the Court of Appeal that their eschewing of the pursuit of disclosure of documents passing between the BIU and the Bank's external lawyers was premised on the documents in question being concerned with the seeking or obtaining of legal advice properly so-called. In effect, despite having limited their argument before the Court of Appeal to documents other than those passing between the BIU and the external legal advisers, the Liquidators were performing a "volte face" in submitting that communications between the BIU and the Bank's external lawyers concerning the Bingham inquiry which were not for the dominant purpose of seeking or obtaining legal advice, but rather seeking or obtaining assistance and advice on presentational matters, should be disclosed.

In deciding what the Court of Appeal meant, the judge stated that legal advice privilege covers the seeking or obtaining of advice concerning rights and obligations. Against that background, it seemed to the judge inherently unlikely that the Court of Appeal could have intended to decide that all communications or documents passing directly between the BIU and external legal advisers concerning the Bingham inquiry, attracted legal advice privilege, because the subject matter of such communications and documents was not, or had not been shown to have been, the rights and obligations of the Bank.

The Bank of England submitted that legal advice should not be confined to telling the client the law, but should include advice as to what should prudently and sensibly be done in the relevant legal context. This, according to the Bank, included presentational advice.

However, the judge preferred the argument that the material in question was prepared for the dominant purpose of putting relevant factual material before the inquiry in an orderly and attractive fashion, not for the dominant purpose of taking legal advice upon such material. The judge could find no support in the Court of Appeal's judgment for the proposition that the Bank's lawyers' presentational assistance and advice should be categorised as legal advice of the sort which attracts legal advice privilege. On the contrary, it seemed to the judge that in the light of the Court of Appeal's judgment as a whole, what the Court of Appeal must have been intending to convey was that the relevant legal context meant the nature of the Bank's legal rights and obligations. He considered that it was implicit in the Court of Appeal's judgment that it did not regard the Bank's lawyers' assistance and advice on presentational matters as attracting legal advice privilege.

In short, the judge held that the Court of Appeal had decided that legal advice privilege would not be extended to encompass assistance or advice in the conduct of proceedings which are not litigation.

Unfortunately, because the BCCI Liquidators had not previously sought disclosure of direct communications between the BIU and the Bank's external lawyers, there emerged scope for considerable further argument as to whether individual documents were or were not privileged.

Comment:

The Three Rivers case will be of particular interest to Banks and other financial institutions, when involved with inquiries or investigations such as those conducted by the Financial Services Authority or the Department of Trade and Industry, where litigation privilege may not be claimed in relation to documents prepared in connection with the relevant investigation.

In light of the Three Rivers decisions, certain practical steps should always be taken to ensure effective maintenance of legal advice privilege. The following points should be borne in mind:

only direct communications between representatives of the client who are nominated to seek legal advice and external lawyers will be privileged;

legal advice privilege generally applies to in-house counsel in respect of his/her legal function, but may not apply to communications prepared in an administrative or compliance capacity;

in-house counsel may continue to communicate internally with colleagues under the cloak of privilege, when acting in an advisory capacity and/or for the dominant purpose of obtaining external legal advice;

legal advice privilege will not apply to internal...