Court of Appeal considers the scope of litigation privilege and who is the "client" for legal advice

The SFO sought disclosure of documents generated during investigations undertaken by the defendant's solicitors and accountants in relation to a SFO investigation. It was held that neither litigation nor legal advice privilege could be claimed in respect of most of those documents and the defendant appealed. The Court of Appeal has now upheld that appeal. It held as follows:

(1) Litigation Privilege: The Court of Appeal held that it was largely a factual issue whether criminal or civil proceedings are reasonably in contemplation. Here, the judge had erred in finding that proceedings were not reasonably in prospect. Whilst not every expression of concern by the SFO could be regarded as adversarial litigation, here the SFO had made clear the prospect of its criminal prosecution, and legal advisers were engaged to deal with that situation. (The judge had commented on the position in the insurance-related case of Westminster v Dornoch, in the context of whether litigation can be in prospect even if investigations are not yet complete, but the Court of Appeal did not review that case in any detail).

At first instance, the judge had also held that litigation privilege covers litigation tactics (including settlement) but does not cover advice on how best to avoid contemplated litigation. That was held by the Court of Appeal to be wrong. It was said that "In both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings".

There was also a consideration of the situation where there are potentially 2 separate purposes in creating a document: In Waugh v British Railways Board [1980], it was held that a report was produced for 2 separate purposes (rail safety and litigation) and that litigation privilege could attach only if dealing with anticipated litigation is the dominant purpose. That decision was followed in the later cases of Re Highgrade [1984] and Bilta v RBS, where it was held on the facts that such dominant purpose existed (and in fact it was said in this case to be hard to see what any alternative purpose might have been in those two cases). The dominant purpose test was satisfied in this case as well: although the defendant had wanted to deal with governance issues too, it was clear that the investigation was primarily intended to deal with future litigation.

(2) Legal Advice Privilege: Given the finding that the relevant documents were protected by litigation privilege, it was not necessary for the Court of Appeal to determine whether legal advice privilege applied as well. The Court of Appeal also recognised that it would be "highly undesirable for us to enter into an unseemly disagreement" with the judgment of the Court of Appeal in the Three Rivers (No.5) [2002] case, and that "If the ambit of Three Rivers (No. 5) is to be authoritatively decided differently from the weight of existing opinion, that decision will, in our judgment, have to be made by the Supreme Court rather than this court".

The decision in Three Rivers (No.5) has been the focus of several recent High Court judgments, some of which have criticised its finding that not all officers and employees (and ex-employees) within a company should be treated as the "client" for the purposes of legal advice privilege, and that only those employees within the organisation who are dealing with the matter on which the lawyer is giving advice will be the “client”.

At first instance in this case, the judge affirmed the Three Rivers (No.5) decision but in this case, the Court of Appeal said that "If … it had been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so". That was because it recognised that, whilst the Three Rivers' approach presents no problems for individuals and many small businesses, it does not cater for legal advice sought by large national and multinational corporations: "If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice. In our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach. Moreover, it is not always an answer to say that the relevant subsidiary can seek the necessary legal advice and, therefore, ask its own lawyers to secure the necessary information with the protection of legal advice privilege. In a case such as the present, there may be issues between group companies that make it desirable for the parent company to be able to procure the information necessary to obtain its own legal advice".

It was further recognised that the current English law approach is out of step with the international common law on this issue. Nevertheless, for now, it remains correct.

The Court of Appeal declined to resolve a further argument that all working papers produced by a lawyer should be privileged, provided that they are confidential documents created for the purpose of giving legal advice (and there should be no additional requirement that the documents would betray the tenor of legal advice given by the lawyer). That issue too, it decided, would be better decided by the Supreme Court. It remains to be seen if this case will be appealed further to the Supreme Court.