In a decision handed down today, the High Court has applied the much-criticised Court of Appeal decision in Three Rivers No 5 to find that interviews conducted by a bank's solicitors with its employees were not covered by legal advice privilege, as the employees in question did not form part of the "client" for privilege purposes: The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch).

The Three Rivers No 5 decision has caused difficulties for corporates since it was handed down in 2003. It has led to a risk that in any given case the "client" might be restricted to some limited group of employees, so that communications or documents prepared by anyone else in the organisation would not be privileged, unless they were prepared for the purposes of contemplated litigation. That is because, as is well-established, legal advice privilege (unlike litigation privilege) does not apply to communications with third parties; it only covers lawyer / client communications.

Significantly, however, in the 13 years since the Three Rivers No 5 decision was handed down, there has not (to our knowledge) been any reported English case in which the decision was applied to restrict the identity of the "client" for privilege purposes. Not, that is, until the past month, when we have seen two judgments in quick succession, the first being Astex Therapeutics Ltd v Astrazeneca AB [2016] EWHC 2759 (Ch) in which Chief Master Marsh held that certain employees were not part of the "client" for privilege purposes, but with only brief analysis on the point.

In the present decision, Mr Justice Hildyard considers the question in much greater detail. In doing so, he reaches a conclusion which narrowly interprets the definition of "client" and which will require careful consideration by corporates seeking legal advice. In essence, although the judge could see force in the criticisms of Three Rivers No 5, and recognised that these may need to be considered by the Supreme Court in due course, he concluded that the effect of the decision (which is of course binding on him) is to limit the "client" to those who are authorised to seek and receive legal advice on behalf of a client corporation. Importantly, he concluded that authority to provide information to the lawyers is not sufficient for these purposes.

The judge did not think it was necessary to determine whether the effect of Three Rivers No 5 goes further, so that the "client" comprises only those who are the "directing mind and will" of the organisation – which RBS argued would impose an undesirable restriction on the scope of legal advice privilege available to corporates, go beyond the findings in Three Rivers No 5 and undermine the policy underlying legal advice privilege. The judge did suggest, however, that he inclined to that view.

The decision also contains interesting discussion of when a lawyer's notes of a non-privileged discussion will be subject to privilege, the law the English courts will apply to determine questions of privilege, and when the court will exercise its discretion to allow a party to withhold disclosure or inspection.

RBS has indicated an intention to seek permission to appeal.

Background

The present decision was given in the context of group litigation brought against RBS relating to a rights issue of shares in the bank announced in April 2008.

RBS claimed privilege in "transcripts, notes or other records" of interviews conducted by or on behalf of the bank with its employees and ex-employees as part of certain internal investigations.

It was not contended by RBS that the documents were subject to litigation privilege (which applies where documents are prepared for the dominant purpose of litigation that is pending or in reasonable prospect). The only ground of privilege relied on was legal advice privilege, which applies to lawyer / client communications for the purpose of giving or obtaining legal advice.

RBS contended that the documents were privileged because:

  1. If English law applied, the documents were privileged as a record of lawyer / client communications for the purposes of giving or obtaining legal advice – ie the interviewees were part of the "client" on a proper interpretation of Three Rivers No 5.
  2. Even if the interviewees were not part of the "client", the documents were privileged as part of the lawyers' working papers.
  3. In the event that the Court found the documents not to be privileged under English law, the English court should apply US law (not English law) to the question of whether the documents were privileged (because there were close connections with the US, including that one of the investigations was undertaken as part of RBS's response to subpoenas issued by the US Securities and Exchange Commission) and the documents were clearly privileged under that law.
  4. Even if English law applied, and if the documents were not privileged under English law, the English court should exercise its discretion to order that disclosure or inspection could be withheld because of RBS's rights under US law.

Decision

The judge (Hildyard J) rejected the claim to privilege on all grounds, and refused to exercise his discretion to prevent disclosure and inspection. The arguments and the judge's conclusions on each of the issues identified above are considered in more detail below.

(1) Three Rivers No 5

As noted above, the Three Rivers No 5 decision ([2003] EWCA Civ 474) led to significant uncertainty over the question of who is a lawyer's "client" for the purposes of legal advice privilege.

In that case, creditors of BCCI sued the Bank of England for misfeasance in public office. The Bank asserted privilege in documents prepared by its employees which were to be provided to its external solicitors to assist in preparing the Bank's submissions to the Bingham Inquiry on the collapse of BCCI.

The Court of Appeal held that, for the purpose of assessing privilege, the "client" did not encompass all employees of the Bank but was limited to a particular group of three individuals (the Bingham Inquiry Unit or "BIU") who had been given responsibility for coordinating communications with the Bank's solicitors. Everyone else at the Bank was a third party to the lawyer-client relationship, so legal advice privilege did not apply.

In the present case, RBS argued that Three Rivers No 5 was an unusual case which should be confined to its own particular facts. RBS justified that approach, in part, by reference to the extensive academic criticism of the decision and its disapproval in other jurisdictions including Singapore.

In particular, RBS argued that the application of Three Rivers No 5 should be confined to the particular context where a special unit (in that case the BIU) had been established as the exclusive conduit for communications between the client organisation and its lawyers, and internal documents were prepared by other employees (who were not authorised to communicate with the lawyers) to assist that unit in the preparation of communications with the lawyers. In other words, the decision did not apply to communications directly between a company's lawyers and its employees who were authorised to communicate with the lawyers.

Hildyard J recognised that there was force in these criticisms and attempts to confine the application of Three Rivers No 5, saying: "It may be that in a suitable case the Supreme Court will have to revisit the decision…". However, he considered the decision to be binding authority that legal advice privilege is limited to communications between lawyer and client and "the fact that an employee may be authorised to communicate with the corporation's lawyer does not constitute that employee the client or a recognised emanation of the client".

In what the judge referred to as "the fundamental and most powerful part of RBS's case", RBS submitted that it was not contrary to Three Rivers No 5 that an individual who was authorised by the client corporation to communicate either instructions or factual information to the corporation's lawyers, to enable the corporation to seek legal advice, should be treated as part of the client and protected by legal advice privilege.

The judge however rejected that submission, finding (in essence) that the effect of Three Rivers No 5 is to limit the "client" to those who are authorised to seek and receive legal advice on behalf of a client corporation, and that authority to provide information is not sufficient for these purposes.

The judge said he did not think it necessary to determine whether a further implication of Three Rivers No 5 was to restrict the "client" to those who are the "directing mind and will" of the organisation. However, he added:

"I suspect that such a restriction will often reflect reality: a corporation is unlikely to authorise an individual to seek and receive legal advice on its behalf to an individual or body which is not its directing mind and will. Further, in my view, there are good reasons for it not doing so, and for the law not extending privilege if it does. So I do incline to the view that only communications with an individual capable in law of seeking and receiving legal advice as a duly authorised organ of the corporation should be given the protection of legal advice privilege."

(2) Lawyers' working papers

As noted above, RBS submitted that even if the interviewees were not part of the "client", and therefore the interviews themselves were not privileged, the lawyers' notes of those interviews were privileged as part of the lawyers' working papers.

It was common ground that lawyers' working papers are privileged. The judge explained the basis for this principle, by reference to previous authority, as being that disclosure of lawyers' working papers may betray or at least give a clue to the trend of the advice being given to the client.

It followed (and was not disputed) that a verbatim transcript of an unprivileged interview would not be privileged; there had to be some attribute of the notes which distinguished them from verbatim transcripts and triggered their protection as lawyers' working papers.

The burden of demonstrating this was on RBS. The judge concluded that the burden was not satisfied on the evidence. He pointed out that any notes of an interview, as opposed to a bare transcript, are likely to reflect to some extent the note taker's particular interests, lines of inquiry and perception of the relative importance of various points.

Here, RBS's evidence indicated that the notes included "mental impressions", and reflected preparation which revealed the lawyers' train of enquiry, but the judge held this was not sufficient. There was, he said, a real difference between reflecting a "train of enquiry" and giving a clue as to the trend of legal advice.

(3) Which law applies?

RBS submitted that the court should depart from the old established rule that it is the lex fori (or law of the forum) which governs issues of privilege because:

  • the modern concept of legal professional privilege as a fundamental human right, rather than as an aspect of the law of evidence, rendered it inappropriate and obsolete; and
  • the previous case law could be distinguished as it invariably concerned the position where the foreign right was more limited or had been waived, rather than (as here) where a party has sought to rely on a broader foreign right to privilege.

RBS proposed a new choice of law rule, which would apply the law of the place with which the relevant engagement or instructions had their closest connection (unless that would be contrary to English public policy). Here, RBS said, that would result in the application of US law.

The judge said it appeared likely, and he was prepared to assume, that the interview notes would be privileged under US law. However, he rejected the submission that US law should apply to the question, including on the basis that the English court's application of the lex fori to questions of privilege had been well settled since the mid-19th century, he did not think there was sufficient basis for applying a different rule where the foreign law gave broader protection, and there were practical difficulties in applying some other law.

(4) Discretion to prevent disclosure / inspection

Finally, RBS contended that (even if English law applied and the documents were not privileged), the court should exercise its discretion to order that disclosure or inspection could be withheld. That was (in summary) because RBS had a right to withhold inspection under US law, and a reasonable expectation that the interview notes would be and remain privileged.

The judge accepted that the court had a discretion to prevent disclosure or inspection notwithstanding that a document is disclosable. He described the discretion as a "salutary one", not least where legitimate expectations may need to be taken into account in striking a balance, but said the court was likely to lean heavily in favour of disclosure unless there were compelling grounds to do otherwise.

The judge concluded that this was not a special case where the general public policy in favour of disclosure should yield to the foreign law right.