UK clarifies scope of privilege

Decision of Court of Appeal allays concerns about narrowing scope of professional privilege

A RECENT DECISION of England and Wales’s Court of Appeal has allayed concerns about the narrowing scope of professional privilege afforded to legal advice in the United Kingdom.

The decision in Director of the Serious Fraud Office (SFO) v. Eurasian Natural Resources Corporation (ENRC), released in September, overturned a High Court ruling last year that required ENRC to hand over working papers and notes prepared by lawyers for an internal investigation regarding allegations of wrongdoing, to the SFO.

ENRC has consistently denied that any wrongdoing occurred, saying that it was investigating allegations against businesses it was looking to buy. The company strongly maintains that the allegations were unsubstantiated.

The High Court ruled that the materials were not covered by litigation privilege because they were created before criminal proceedings were contemplated. The decision was generally taken to mean that any organization, from multinationals to small local business, would have to divulge their private communications with their lawyer.

“The High Court ruling created real concern about the state of professional privilege in this country because it limited litigation privilege to situations where litigation was a ‘realistic prospect,’” said Charles Thomson of Baker & McKenzie LLP in London.

But the Court of Appeal ruled that advice whose dominant purpose was to avoid legal proceedings or in furtherance of settlement, was advice given for the purpose of defending such proceedings and therefore protected by litigation privilege. The documents covered by the Court of Appeal’s decision included interview notes and materials prepared by forensic accountants.

“The Court of Appeal stated that litigation privilege applies even before a formal criminal investigation is launched where the dominant purpose involved in creating the documents is to enable the company to pull together the facts,” Thomson stated. “Still, the decision only goes so far as to bring the law into line with what the profession generally understood it to be before the High Court ruling.”

The concern over the initial ruling as a continuing encroachment on professional privilege finds its origins some 15 years ago in the Court of Appeal’s judgment in Three Rivers District Council v. The Bank of England, known as Three Rivers (No. 5). The judgement has been widely interpreted to hold that solicitor-client privilege, also known as “legal advice” privilege, attaches only to communications between lawyers and employees specifically tasked to seek and obtain legal assistance.

The decision has been much criticized in the UK and abroad, by practitioners and academics alike.

Three Rivers is not really in line with the thinking in the rest of the world, including Canada, where privilege generally attaches to the corporation and includes all its officers and employees,” Thomson said.

Still, the panel in SFO v. ENRC felt bound by Three Rivers, concluding that it would be up to the Supreme Court to review the law. Thomson was unimpressed, calling the Court of Appeal’s reluctance to seize the opportunity and clarify the law, a “complete cop out.”

This having been said, the Court of Appeal did make it clear that if it had been open to the panel to depart from Three Rivers, it would have done so.

“In the modern world, however, we have to cater for legal advice sought by large national corporations and indeed multinational ones. In such cases, the information upon which legal advice is sought is unlikely to be in the hands of the main board or those it appoints to seek and receive legal advice,” the court noted. “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.”

Whatever its failings, then, it’s no surprise that the UK Bar has welcomed the decision.

“In a world where regulators increasingly investigate companies and individuals, and where the consequences, (including criminal sanctions, can be very serious, this judgment clarifies the extent of the fundamental legal safeguard of privilege,” said Ruth Cowley in Norton Rose Fulbright’s London office.

Canadian companies with UK operations will most likely feel the same way.