In this article, we explore the boundaries of legal professional privilege in relation to in-house legal advisers. The issue is very topical because of two decisions which have been issued recently by the Court of Appeal in England and Wales and the European Court of Justice.
What is Legal Professional Privilege?
Legal professional privilege exists to protect oral and written confidential communications between a lawyer and a client from disclosure. Legal professional privilege is divided into two subcategories: legal advice privilege and litigation privilege (where the advice is sought in respect of current or anticipated Court proceedings).
Legal professional privilege is a longstanding principle of law and is even recognised as a fundamental human right under Article 8 of the European Convention on Human Rights. In general terms, legal advisors are not only justified but bound to withhold privileged information received from clients. The privilege attaches to the client rather than the lawyer and may only, therefore, be waived by the client.
Decision in R v Prudential PLC
Let’s look firstly at the Court of Appeal decision in R (on the application of Prudential PLC & Anor) v Special Commissioner of Income Tax & Anor1. In this case, the Court of Appeal confirmed that legal advice privilege does not apply to any other profession other than that of a qualified lawyer, solicitor or barrister, or an appropriately qualified foreign lawyer.
The case concerned a widely-marketed tax avoidance scheme. Using their statutory powers, HM Revenue and Customs sought documents from Prudential. These documents contained legal advice on tax matters which Prudential had received from its accountants. Prudential argued that the documents were protected by legal professional privilege and that this privilege should extend to the advice on tax law which had been given by its accountants. It was also argued that the determining factor as to the availability of privilege should be the function of the advisor when advising on the law, rather than the advisor’s status.
The Court of Appeal rejected these arguments and confirmed that legal advice privilege is only available in relation to advice given by qualified lawyers. It is not available to other professionals, regardless of whether the advice those professionals give is in the nature of legal advice. Finally, the ruling made it clear that is not the legal nature of the advice itself which attracts privilege, but the fact that it was given by a member of the legal profession.
Points to note on legal professional privilege
The Prudential case is a useful reminder of the fundamental elements of legal professional privilege, namely (and subject to certain very limited exceptions):
- It protects all types of confidential communications with a lawyer from disclosure, both oral and written;
- The information communicated must be confidential in its nature and that confidentiality must be created by the confidential nature of the lawyer/client relationship; and,
- The communications must involve an independent professional lawyer and must be made for the dominant purpose of obtaining legal advice.
Legal professional privilege and In-house lawyers
Previously, the position in relation to in-house lawyers was set out in the 1983 case of AM&S Europe Ltd-v- Commission of the European Communities. In that case, the European Court of Justice ruled that in-house lawyers are in a different situation to external advisers. Specifically, although in-house lawyers may be enrolled with a Bar Association or Law Society and thereby subject to obligations in relation to professional ethics, the Court noted that in-house lawyers do not enjoy the same degree of independence from their employers as is the case for lawyers working in external law firms.
The Court said that “since in-house lawyers occupy the position of employee, that position, by its very nature, does not allow them to ignore the commercial strategies pursued by their employers, and affects their ability to exercise professional independence”. The Court also confirmed that a document may only be withheld on the basis of legal professional privilege if it was a communication made for the purposes of obtaining legal advice and in the interests of the client’s rights of defence.
Fast-forwarding a mere three decades, the matter came before the European Court of Justice again in the autumn of this year, in a case which involved the intricacies of the European antitrust regime. Akzo Nobel had appealed against a judgment that legal professional privilege does not apply to communications between a company and its inhouse lawyers. Some had hoped that the Court would take the opportunity to extend legal professional privilege to in-house lawyers but this was not to be. Again, the Court relied on the fact that in-house lawyers are not sufficiently independent of their employers due to their economic ties. In effect, those ties are too close to enable the in-house lawyers to ignore their employers’ commercial strategies. Accordingly the Court affirmed the AMS decision from 1983 as to the fundamental elements of privilege.
Protection for Work done by In-house Lawyers
There are simple actions which can be taken to reduce the risks arising out of the lack of privilege for in-house lawyers:
- Use external lawyers at an early stage, including perhaps for sensitive internal investigations – otherwise, the work done by an in-house legal team in those easy stages is likely to be discloseable.
- Mark all documents appropriate with labels which reflect the relationship, e.g. ‘privileged and confidential: lawyer/client communication’.
- Draft separate advice on commercial and legal matters, rather than combining these within one document.
- Minimise production of written material in the period prior to external lawyers being appointed.
- Draft and implement written protocols for staff and educate staff on their roles and on the issues associated with privilege.
- Ask staff to avoid adding to external advice by way of comments, lest this results in the advice becoming discloseable.