Legal advice privilege: Restrictive interpretation of the Three Rivers client test applied by the English courts

The 2003 Court of Appeal decision in Three Rivers (No 5) and, in particular, its restrictive view of who constitutes the client for the purposes of legal advice privilege, has been controversial. It has been criticised by academics, and other common law jurisdictions have departed from it, insofar as it restricted legal advice privilege to lawyers' communications with the few employees tasked with seeking and receiving legal advice (i.e. the "client"). This limitation meant that lawyers' discussions with other employees, albeit to enable them to give legal advice, would not be privileged (in a non-litigation context).

Since Three Rivers (No 5), however, the English courts have not had an opportunity to consider its implications. But in the space of a month, two cases have come before the High Court in which the issue of who constitutes the "client" for the purposes of legal advice privilege has been addressed. In both, the restrictive Three Rivers (No 5) test was upheld and applied.

Key points to note:

• Claims to privilege are increasingly being challenged, particularly in relation to documents created during internal investigations, and will be closely scrutinised by the English courts and regulators.
• The "client", for the purposes of legal advice privilege, consists only of those individuals authorised to seek and receive legal advice on behalf of a corporate. Authorising employees to talk to the corporate's lawyers in order to enable those lawyers to advise the corporate will not, of itself, suffice. Any employee who is not actively involved in instructing the lawyer, or does not form part of a specially designated unit set up by the corporate to work with the lawyers, will fall outside the definition of "client". 
• Consequently, unless litigation privilege applies, none of those lawyer/employee communications, or documents produced by those employees and sent directly to the lawyers, will be privileged, even if they are necessary to provide information to the lawyers to obtain legal advice.
• Likewise, any verbatim note, transcript, or recording of any discussions or interviews by lawyers will also not be privileged.
• Non-verbatim interview notes produced by the lawyers will only be privileged if it can be shown that they betray the trend of advice being given to the client. The fact that the note is not a verbatim note, or includes the lawyers' "mental impressions", will not of itself be sufficient to pass that test.
• In cross-border investigations, consider which other privilege laws could apply. The law of the jurisdiction in which the underlying investigation is conducted or with which it is most closely connected will not always apply. 

Background

English law recognises the right of a client to consult a lawyer in confidence without fear of having to disclose communications between them at a later date. Referred to as "legal professional privilege", this right entitles a party to litigation, arbitration or other adversarial proceedings to withhold documents from the other side. It can also be used to deny regulators and enforcement agencies access to documents.

There are two types of legal professional privilege: legal advice privilege and litigation privilege. Legal advice privilege applies to confidential communications between a client and their lawyer that are for the purpose of seeking or giving legal advice. Litigation privilege applies once adversarial proceedings are contemplated or ongoing, and is broader than legal advice privilege in that it also covers communications with third parties that are related to the proceedings.

In the case of individuals, the client is the individual instructing the lawyer. However, as a result of the Court of Appeal decision in Three Rivers (No 5), difficulties can arise where the legal advice is being given to a corporate entity. In that case, the Court gave a restrictive definition of the client to the extent that only those employees of an organisation responsible for obtaining or receiving legal advice could be regarded as being the "client" for the purposes of legal advice privilege. It has been criticised as not reflecting commercial reality as, in many cases, the individuals providing the information the lawyers require may not be the same as the individuals receiving and acting on the advice given. As a result, for example, lawyers' fact finding interviews with ordinary employees and former employees, conducted to allow the lawyers to advise the corporate, were not privileged communications.

The judgment was fact-specific and gave little guidance as to its more general application. Other common law jurisdictions such as Hong Kong and Singapore have since departed from this restrictive interpretation in recognition of the difficulties it creates. However, until a month ago, the issue as to who is the "client" in a corporate context had not (so far as we are aware) been considered by the English courts. That is why, despite their first instance status, these two decisions are of interest.

Astex Therapeutics Ltd v AstraZeneca (8 November 2016)

This case concerned a collaboration agreement between Astex and AstraZeneca (AZ). The key issue was whether certain drugs fell within the scope of that agreement. Both parties assumed that they did. However, following an internal review by AZ (which included discussions with AZ scientists – both current and ex-employees), Astex was informed that AZ no longer considered the drugs to fall within the scope of the agreement.

Astex commenced proceedings against AZ. The particular hearing (before Chief Master Marsh) concerned their application for further particulars relating to, among other things, the claims of privilege over the lawyers' attendance notes with the AZ scientists. In ordering that further particulars should be provided, Master Marsh considered Three Rivers (No 5). Although he saw "considerable force" in the criticisms made of the decision, he was bound to apply it, and did so restrictively. In his view: "AZ has no basis for claiming legal advice privilege over interviews with employees and ex-employees." Although he did not decide the point as to whether certain of the AZ scientists constituted the client, he thought that "the review of a contract by seeking information from employees, and former employees, is unlikely, in most circumstances, to be protected by legal advice privilege."

The RBS Rights Issue Litigation (8 December 2016)

This case concerns claims brought by shareholders in respect of a 2008 rights issue of shares in the Bank. This application concerned interview notes made by the Bank’s in-house and external lawyers in respect of interviews conducted in connection with an investigation the Bank undertook relating (broadly) to its sub-prime exposures in the US, and as part of its investigation into allegations made by ex-employee Mr Victor Hong.

As part of both investigations, the Bank interviewed 124 individuals across a number of divisions, locations and levels of seniority. Importantly, the Bank had authorised each of the interviewees to participate in the interviews. Given the US connection, it was anticipated at the time that US law would apply to any privilege issues. That close connection to the US and expectation was relied on by the Bank to argue that US law on privilege should apply rather than English law. This was rejected by Mr Justice Hildyard.

The Bank also argued that if English law did apply, the interview notes were covered by legal advice privilege (litigation privilege did not apply). Either:

• the notes were a record of lawyer-client privileged communications, as the employees had been authorised by the Bank to provide information direct to the lawyers in order to enable the latter to advise (and as such, Three Rivers (No 5) could be distinguished); or
• in any event, the interview notes were lawyers’ working papers.

Both arguments failed.

Who is the client for the purpose of Three Rivers?

Three Rivers concerned an unusual set of facts where the Bank of England set up a special three man unit (the BIU) as its exclusive conduit for communications with its external lawyers in relation to a statutory inquiry. As such, the BIU was the client to the exclusion of all other employees, including the Governor of the Bank of England himself.

RBS therefore sought to distinguish Three Rivers on its facts, arguing that it did not address what is meant by the "client" in a corporate context. Three Rivers did not concern communications directly between employees and the corporate’s lawyers: on its facts, only the BIU could communicate with the lawyers; none of the employees had authority to do so.

It was therefore not contrary to Three Rivers (No 5) for the concept of "client" to include individuals who, with the authority of a corporate which is seeking legal advice, communicated to the corporate’s legal advisers at their request either instructions or factual information, in confidence and for the purpose of enabling that corporate to seek or receive legal advice. Such a construction was necessary in order to fulfil the purpose of the protection afforded by legal advice privilege.

Although the Judge considered this to be the fundamental and most powerful part of the Bank's case, he rejected its arguments.

He acknowledged that the facts in Three Rivers (No 5) were "out of the ordinary" and that the case has been widely criticised. He added: "in a suitable case the Supreme Court will have to revisit the decision". However, the decision "is based on principles of general application, which….. remain binding law".

In support, he looked at the way the decision was analysed and dealt with by the House of Lords in Three Rivers (No 6). He also referred to Master Marsh's decision in Astex. Although he accepted that the question of whether the scientists constituted the “client” had not been decided, he considered it clear from Master Marsh's judgment that he did not consider that it would suffice if the relevant individual only had the company’s permission to provide information. The Judge interpreted Master Marsh's reference to “a class of persons authorised to give instructions” as being "a reference to persons authorised to seek legal advice by way of instructions on the corporation’s behalf, whether as a matter of corporate governance or by express provision (as was the BIU in Three Rivers (No 5))."

He therefore held that "the individuals interviewed were providers of information as employees and not clients". The interviewees were authorised to speak to the lawyers but were not authorised to seek and receive legal advice and were not, therefore, the "client" for the purposes of the Three Rivers test. He went further, saying that, although he did not need to decide the point, the "reality" was that those authorised to seek and receive legal advice would often be limited to those who formed part of the directing mind and will of the corporate client (i.e. the Board).

Were the interview notes privileged lawyers' working papers?

In English law, lawyers’ working papers are generally privileged. This was relied on by the Bank to argue that, even if the interviews themselves were not privileged, the interview notes prepared by the lawyers were.

It was accepted that verbatim notes or transcripts of unprivileged interviews are not themselves privileged. The Judge then went on to consider what was required for a lawyer's interview note to be regarded as "working papers" rather than a verbatim note. In his view, the Bank had to be able to show that the interview notes had "some attribute or addition such as to betray or at least give a clue as to the trend of advice being given to the client by its lawyer."

He did not think that the evidence provided by the Bank satisfied the test. In particular:

• Too much reliance was placed on the fact that the interview notes were not verbatim - the mere fact that a note is not verbatim, and therefore may betray some selection or line of enquiry, is not sufficient. Something more is required.
• The Bank failed to provide examples of the sort of legal input said to justify the claim of privilege.
• The Bank did refer to the fact that the interview notes included the lawyers’ “mental impressions” but nothing further was provided to explain why that would or could reveal the trend of advice. At best, the explanation given indicated that the “mental impressions” reflected preparation which revealed the lawyers’ “train of inquiry”.

In his view, there is a real difference between reflecting “a train of inquiry” and reflecting or giving a clue as to the trend of legal advice. He was not prepared to give the Bank another opportunity to present further evidence and therefore found that the Bank’s claim to privilege over the lawyers' interview notes also failed. 

Comment

It is noteworthy that both Chief Master Marsh and Mr Justice Hildyard acknowledged the force of the criticisms made of Three Rivers (No 5) but felt bound to apply it in its most restrictive sense. However, until the matter is revisited by the Supreme Court, the sensible course is to proceed on the basis that the Three Rivers client test, in its most restrictive sense, applies.

Cases referred to:

• Astex Therapeutics Ltd v AstraZeneca [2016] EWHC 2759 (Ch) (8 November 2016)
• The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (8 December 2016)
• Three Rivers District Council & Others v The Governor and Company of the Bank of England [2003] EWCA Civ 474