Privilege is a complex area which can be the source of much confusion.

The rules on privilege play a key role in the obligation to disclose documents (some of which may be crucial to the outcome of a case) which is an important stage in any litigated dispute. Privilege is also relevant to how 'legal' documents might be used, for example disclosure to a parent or subsidiary.

Here are five of the most frequently asked questions and answers on privilege which in our experience commercial clients ask their lawyers.

1. What is privilege and what is the difference between legal advice privilege and litigation privilege?

Under the English legal system, parties to litigation are obliged to disclose to their opponent not only documents that a party wants to rely upon but also those that may adversely affect its case. Privilege is a counterbalance to this obligation. It protects certain classes of documents from being disclosed to the other parties or the court. There are several categories of privilege. The three most common are:

Legal advice privilege: this protects communications between a lawyer in his/her professional capacity and his/her client from disclosure, provided they are confidential and for the purposes of giving or seeking legal advice. It will not apply to advice of a purely strategic or commercial nature where no legal input is required. Asking a lawyer which horse is going to win the 2.30pm at Kempton, for instance, would not attract privilege! Communications with an independent third party are not covered by this head of privilege.

Litigation privilege: this protects confidential communications between a client and his lawyer (or between one of them and a third party) where the dominant purpose of the communication is obtaining legal advice in relation to actual or contemplated litigation.

What is contemplated litigation? The litigation has to be 'reasonably in prospect' and that goes beyond 'mere possibility' – 'a distinct possibility that sooner or later someone might make a claim'; 'a general apprehension of future litigation'.

The difference

Legal advice privilege can apply whether or not litigation is pending or contemplated, whereas litigation privilege can only apply when litigation is pending or contemplated.

Legal advice privilege only applies to communications between a lawyer and a client whereas litigation privilege can apply to communications by a client or his/her lawyer and a third party.

Without prejudice: this is a different kind of privilege from the two above. As a matter of public policy the courts want to encourage parties to resolve their disputes without the matter going to trial. Therefore all genuine attempts to settle a dispute will, subject to a contrary intention being expressed, be treated as 'without prejudice' and be privileged from production to the court or any other party. For more on 'without prejudice' see the next part (part 10) in our survival guide.

2. What wording should we use if we want to indicate that we think an internal document we are creating is privileged?

The best wording to use is generally 'legally privileged'. This is enough to show the document was intended to be privileged when it was created and it covers off both legal advice privilege and litigation privilege. Just using that label, however, does not itself guarantee protection; it is the substance of the document not its label which will determine whether it is indeed protected by privilege.

3. Can legal advice obtained be shown to other recipients without losing privilege as far as anyone else is concerned?

Yes, it is possible, but care must be taken in order to ensure that privilege is not lost.

Case law has determined that as a matter of principle a client can reproduce legal advice for its own purposes without necessarily risking that reproduction not being privileged.

If legal advice is to be disclosed to a third party it would be wise to make the third party sign a confidentiality agreement. This reinforces the fact that privilege has not been waived and that the third party should not disclose the document to others.

4. Does the same privilege protection arise from both in-house and external lawyers?

Yes, in England and Wales, except in respect of competition law (further detail on privilege and competition law can be found in our alerts: In-house lawyers take note: CFI confirms no in-house lawyer privilege for EC competition investigations and When the Commission comes to call: legal privilege vis-à-vis the European Commission). An in-house lawyer will need to ensure that he/she is carrying out the function of a lawyer giving legal advice for the privilege to attach. If the in-house lawyer is carrying out a different function e.g. company secretary then non-legal functions carried out in that role will not be covered by privilege at all.

5. If legal advice is given to a subsidiary will privilege be kept if that advice is reported to a parent/sister company?

Yes. The English courts have no problem with the principle that a client can use the privileged information it has in this way, where there is a commercial/legal justification for sharing this information.

It is a matter of commonsense, however, that once information is shared, control over it is, at best, diluted and, at worst, may be lost. As a result it would be wise to ensure the terms upon which information is shared is documented and the other parties, even within a group of companies, know of the significance of the information provided and that it should not be passed on. It is also sensible to make sure that standard privilege wording is included on the document/s and any covering documents such as emails.