Opinion

Guy Henderson, commercial litigation partner, Allen & Overy

Two recent decisions of our courts, both in relation to privilege, illustrate differing approaches to developing the law. Until very recently, clients have regularly been frustrated by a technical deficiency in the law: it had not expressly permitted them to contract to preserve the privilege that attaches to legal advice and to advice obtained in the context of litigation.
It is well established that legal privilege belongs to a client and can only be waived by that client. However, the law governing what the client can do with that privileged material, without losing the privilege, has been uncertain. Given that the consequences of an inadvertent waiver of privilege may be catastrophic, this uncertainty has caused real difficulties for clients in practice.
There are many situations in which a client may wish (or even need) to share privileged material with a third party. For example, where a company is seeking finance or disposing of an asset or business. As part of this process, the company may need to provide information to a bank or buyer. The required disclosure may include information on potential liabilities and/or the prospects of those liabilities arising. Often this will require sharing legal advice with the third party. A company may also need to show its auditors privileged material.
Protection has been provided by the law in these circumstances through the concept, developed by the courts, of ‘common interest privilege’. This applies in situations where a party sends a document that is privileged in his hands to another who has a common interest in the receipt of the privileged document. However, when common interest privilege provides protection and, in particular, the nature of the common interest required, it has often been unclear. The relationship between common interest privilege and the waiver of privilege has also been unclear.
Common sense would suggest that the owner of the privilege should be able to enter into a contract that preserves privilege when material is given to the third parties. However, until May this year, it seemed that this was not the case. Then, on an appeal from a case in New Zealand (B & Ors v Russell McVeagh McKenzie Bartleet & Co), the Privy Council decided that, where privileged documents were disclosed to a third party on express terms that privilege in them was not being waived, privilege would not be lost in those documents.
The decision should mean that it is no longer necessary for businesses to resort to artificial mechanisms to try to protect the privilege in documents being disclosed to a third party. Those precautions, while providing some comfort on a practical level, were always of doubtful value legally and often simply served to delay the underlying commercial transactions and increase costs.
The decision of the Privy Council represents a victory for common sense and is to be applauded. So far so good. It contrasts with the decision of the Court of Appeal in April in the BCCI litigation against the Bank of England. There, the Court of Appeal decided that, while communications directly with a lawyer to obtain legal advice were privileged, other materials (eg statements) prepared for those purposes were not privileged, but merely ‘raw material’ on which the advice was based. This was a clear policy decision to follow 18th and 19th century cases and is counter-intuitive. If the advice obtained from a lawyer is privileged, most people could (and did) expect materials created for the purpose of getting the advice also to be privileged.
The House of Lords has just refused permission to allow an appeal of the Bank of England case, so for the time being this remains the law and practitioners will be kept unnecessarily busy trying to devise safe ways for clients to obtain their advice. At the time of the Woolf reforms, it was rumoured that certain judges wanted legal privilege to be abolished altogether, so don’t hold your breath waiting for things to change.