Privilege and the in-house lawyer

David Lowe: Privilege, it doesn't matter until you really need it. Suddenly you are in a dispute with another party who are asking you to disclose all of your documents. Do you have to release all that legal advice you gave to the board? How embarrassing will that be and if not damaging to your case? But privilege is really complex which is why we have asked Clark Sargent today, litigation partner, to come and talk to us about privilege and about how the in-house law should apply.

So Clark, privilege, what is it and why is it important?

Clark Sargent: In UK litigation the general expectation is to allow the court to get to the right decision. The court must be able to see all of the material that is relevant to the matters in dispute. Generally you would disclose everything in the UK.

Privilege is an exception to that obligation to give full disclosure and privilege is the thing that protects and stops you having to show the other side your communications, your advice from your legal team, your lawyers.

David: So does privilege apply to the in-house lawyer?

Clark: In the UK, again, yes it does. We are very clear about the ambit of privilege and it is now a fairly fixed box privilege. If you are a lawyer, a legally qualified person, you have a practising certificate or you work within the context of a law firm then your advice is privileged. That also applies equally to in-house counsel.

The advice that we give to our clients, be they a private law firm's private clients, be they an in-house lawyer's company clients, that advice will be privileged. Now the one exception to this area is in relation to European legislation, in particular in competition where in the Akzo Nobel case, the ECJ, the European Court, has said that the advice of an in-house lawyer on competition matters to their employer company client does not qualify for privilege and that is effectively a European exception. The court came to that view because it decided that you couldn't be independent enough because the person you were advising is actually your employer and paying your means of living, so that gives the appearance of, or could affect,your impartiality so there privilege doesn't apply. For UK based in-house lawyers that is the exception they need to be wary of.

David: What about non-lawyers like accountants and tax advisers?

Clark: Interesting question and there has been a case on that recently, the Prudential case and the court has been very clear that, because privilege is this exception to general disclosure obligations, and I said it was compartmentalised privilege and the court has said those parameters will stay where they are, it is lawyers only, it does not include accountants.

So in the Prudential case where Prudential had taken a lot of tax advice, which you could say was tax legal advice, they sought to claim privilege for that advice from their accountants and the court said no, we cannot extend it. It's an exception and we're keeping it where it is. It's to lawyers only and that's important to think, you might still want to take tax advice, you might want to take it from your lawyers, you might want to take it from your accountants, if you take it from your accountants do you want to impose a lawyer in the relationship as well in order to generate privilege?

David: And what about the board, do you risk losing privilege when you report to the board?

Clark: The board runs the company. The board is the management of the company, it has to be right that the defined client can tell the board the advice that it has been given. So feeding that advice up to the board does not waive the privilege and doesn't obviate or override the privilege. But what is important is to think about the context of what the board then does with that advice and how it is recorded in the minutes.

What you don't want to do is to add into the advice extra bits that might mean that the advice becomes disclosable and you lose the privilege. So you need to put the advice effectively in its raw native format into the board, you can summarise it but if you are going to summarise it keep it to a legal summary, keep it to a clear summary of what the advice is, not oh and because this is the advice then we might want to think about doing option A or option B or option C, put that into a separate bit, a separate note if needs be, because that then might be disclosable but you want to keep the privilege in the legal advice clear.

David: So now I know who the lawyer is, how do you determine who the client is?

Clark: The client can be the narrow number of people within the client who are dealing and interfacing with the lawyers and in that case about a market investigation it was effectively the reporting in by the lawyers to the sub-committee that were looking at the issue for the Bank of England that was the client, not everybody within the Bank of England.

David: So far we have talked about legal advice privilege, how does that differ from litigation privilege?

Clark: Yes, litigation privilege can be both wider and narrower than legal advice privilege. We have seen that legal advice privilege needs to be a sort of confidential communication between the lawyer and the lawyer's client.

Litigation privilege can attach to any document that is prepared predominantly for litigation with that litigation being the dominant purpose for the generation of the document. So it doesn't have to be a communication just between the lawyer and the lawyer's client. So, for example, obviously it would attach to communications with Counsel, with experts, because it's all prepared in the context of the litigation that is happening now so it goes beyond just the client so it's communications with third parties but it must be about litigation.

David: Litigation privilege only arises when reasonably contemplated. What does that mean? Do Court proceedings needs to be issued?

Clark: No it can come in earlier because you have to be able to prepare for the litigation that you foresee. There are two tests which you have to meet. One is for the dominant purpose of the litigation, anticipated litigation and two that the litigation is fittingly in view for that to be why you did what you did. So dominant purpose is interesting and raises a challenge if you have two equal reasons for doing something.

The Three Rivers case itself was an example of that where actually it was an investigation rather than for litigation. So that was why in Three Rivers they had to rely on legal advice privilege rather than using litigation privilege.

A recent example of that is the Chenges case where liquidators were the people who were preparing the relevant document. They were fulfilling it for two reasons which the court said were equal reasons, neither was dominant. One was to perform their duties as liquidator in investigating what had gone on in the company and the second was because there might be some litigation afterwards arising from that.

Now the court said neither of those two purposes was more dominant than the other, therefore they were equal. Neither was dominant, therefore you did not satisfy the test of dominant purpose. Secondly the litigation must be sufficiently in view. In a case called Starbev where papers were being prepared it was relevant that lawyers had not been asked to advise in the context of litigation and disclosure in litigation and what papers might need to be disclosed that actually the court decided litigation was not sufficiently in view and therefore again privilege did not attach. It was too early when these papers were being prepared therefore they were disclosable.

David: How can privilege be waived?

Clark: It is effectively made whenever you forego the confidentiality in the advice that you have received which is generally by showing it to somebody else. Most of the cases are on inadvertent disclosure, so you have accidently shown it to somebody else. This happens a fair bit in the disclosure process in court litigation where you might disclose, you know, 8,000 documents and by accident one in there is a piece of advice from your lawyers. It is a mistake. Now the courts have got to the point where effectively the rule is if it is an obvious mistake then the other side can ask for the document back and will be entitled to have the document back and you are not allowed to rely on the document that you have seen because it was an obvious mistake, they did not intend to waive privilege by reason of the accidental disclosure.

David: Clark that has been a really useful overview of privilege for the in-house lawyer. Thank you very much.

Clark: David, thank you.

David: So Clark any final points that in-house lawyers should consider?

Clark: Ok, well first off remember that privilege attaches to confidential documents so a simple hint is mark documents as confidential and then think about how you are preserving that confidentiality.

Think about who the client is. If you are going to define a committee of people as the client make sure that that's clear to you and clear to the lawyers and that's how the communication chain stays.

Try so far as you can to keep the legal advice compartmentalised in that if you are putting a summary to the board, for example, make sure that the summary is of the legal advice, not of the outcomes that might follow from it.

Try and make sure that people treat the note that is the lawyers' advice as a confidential thing, they don't write notes on it, they don't note it and file it and put it somewhere else, they don't show it to other people, that's how you waive privilege.

You do need a lawyer involved in the chain so if it is that tax and accounting advice do you need a lawyer in the chain? If it's competition advice and there's a European angle to it then you might need to involve an external lawyer because the in-house lawyer alone there does not, in that one exception, have privilege. So think about when you need to involve lawyers just to maintain the privilege example.

And then sometimes of course if you are looking at waiver and you are thinking about documents that you might need to give to third parties, well can you use common interest privilege, can you use joint privilege and if you are making a limited waiver, if you haven't got common interest do think about making it clear that you are making a limited waiver so "I am disclosing you this document, I am disclosing you this document only for this purpose".

And sometimes if you are doing things that might be a bit wider than that, so for example a data room or something which raise their own challenges, think about how you would preserve confidentiality in what you are showing to other people and the confidentiality obligations that you might put on them to make sure that these documents do not go any wider than they absolutely have to.

David: Clark that has been a really useful overview of privilege for the in-house lawyer. Thank you very much.

Clark: David, thank you.