13 April 2004
Will the Andrew Foyle affair prove to be a damp squib or a smoking gun? The answer will only come should the Lovells litigation partner finally make an appearance in the colossal lawsuit filed by the US government against a handful of the world’s biggest tobacco giants.
A couple of weeks ago the appeal judges ordered Foyle to face questions over his role advising British American Tobacco (BAT) on its controversial document destruction policy. The $290m (£159.7m) case concerns allegations that Philip Morris and BAT suppressed or destroyed research documents about the health risks of smoking. It is believed to be the largest civil claim ever filed in the US. BAT had argued that the policy was covered by legal professional privilege. However, Lord Justice Brooke took the view that, although there were likely to be areas of questioning that were “quite plainly” covered by legal privilege, “there will be other areas which quite plainly are not”.
The same court reflected earlier in the month that it had been 50 years since the 19th century roots of legal privilege had been examined in any detail. If any lawyers had been hoping for judicial instruction on this rather arcane area of the law, then it must have been like waiting for the proverbial bus – nothing happens for ages and then three come at once. The appeal judges have now revisited the vexed topic twice in the Three Rivers litigation over the last year, and again with regard to Foyle in USA v Philip Morris and British American Tobacco. All judgments have narrowed down the scope of privilege, much to the consternation of the legal profession.
Nor has the examination of the appeal court helped to clarify the situation, as the judges have been the first to admit. “We’ve found this area of law not merely difficult, but unsatisfactory,” concluded Master of the Rolls Lord Phillips of Worth Matravers in Three Rivers v Bank of England (No 10) in March this year. Lord Phillips then ordered the Bank of England to hand over sensitive correspondence between itself and its lawyers, Freshfields Bruckhaus Deringer, to creditors of the collapsed Bank of Credit and Commerce International. The 10 lever-arch files contain internal notes and letters made in 1991 and 1992 between the City firm and Lord Justice Bingham, who conducted a private inquiry into the bank. Lawyers have now been left wondering as to the status of their advice on everything from minor tax disputes to Financial Services Authority investigations to advice on the Bloody Sunday Inquiry.
In Three Rivers, the appeal judges went back to basics and applied the legal principles privilege, as first stated in 1833, to a legal profession that has changed beyond all recognition and where services often now bear a closer resemblance to public relations than conventional legal advice. ‘Legal advice privilege’ covers letters and other communications passing between a party and its lawyers (acting in the capacity of a lawyer) provided they are confidential and created for the purpose of seeking or providing legal advice or assistance. This is distinct from ‘litigation privilege’, which applies to confidential communications made after litigation has started, or if it is reasonably in prospect.
The facts of Three Rivers concern advice privilege, although the appeal judges were gunning for an overhaul beyond the immediate facts of the case. “The justification for litigation privilege is readily understood,” Lord Phillips observed. “Where, however, litigation is not anticipated, it is not easy to see why communications with a solicitor should be privileged.” The judge went on to argue that legal advice privilege was attached to matters “such as the conveyance of real property or the drawing up of a will”, where it was unclear why it should be so. He continued: “There would seem little reason to fear that, if privilege were not available in such circumstances, communications between solicitor and client would be inhibited.” He concluded by observing that it had been nearly 50 years since the Law Reform Committee looked at this area. “It’s perhaps time for it to receive a further review,” he added.
Three Rivers has caused ructions among lawyers. “It’s clear now that the courts are no longer willing to sit back and accept the bland assertions made by lawyers of legal advice privilege,” reckons George Burn, a senior solicitor in the dispute resolution department at Denton Wilde Sapte. “They feel assumptions about the extent of legal advice privilege have spread too far and now want to test those assumptions. In a sense, Three Rivers was a challenge waiting to happen.”
“What clients seek is clarity, consistency and predictability,” comments Sanjay Bhandari, a senior associate in the dispute resolution department at Baker & McKenzie. “These decisions have caused, and will continue to cause, a huge amount of confusion for clients seeking to apply the rules on privilege.” He predicts “an explosion” in applications for disclosure of legal advice, especially where one party to litigation has also been a witness to an inquiry or investigation. “However, the fact that the Court of Appeal has tentatively called into question the whole basis of legal advice privilege will encourage disclosure applications in relation to any non-contentious legal advice to test the boundaries,” he adds.
It was Judge Tomlinson’s ruling in November last year that sent shockwaves through the profession. He ruled that, for the purposes of defining what constitutes legal advice privilege, legal advice should be restricted to “the seeking or obtaining legal advice concerning rights and/or obligations”. The appeal judges upheld that ruling, and added that if that was the “dominant purpose”, then “broad protection” applies to the communications between lawyers and clients. Freshfields’ advice to the Bank of England concerned how the bank’s material might best be presented to the Bingham Inquiry and so it was not covered. The bank has launched an appeal.
“What you have is a narrowing of the scope of legal advice privilege without any obvious deep analysis of the implications for practitioners, especially in-house counsel,” reckons Jon Lawrence, a commercial litigator at Freshfields. He points to the earlier Three Rivers ruling by the appeal judges (No 5), which he regards as potentially having a fundamental impact. The Bank of England sought to appeal that case to the House of Lords, but was refused permission. The Bingham Inquiry Unit was established within the bank as the primary focal point for the investigation, and the appeal judges ruled that anyone outside that small unit of three or four people was not the ‘client’ for the purposes of privilege. “And so now, when I’m talking to a client or a representative of a client, I have to ask myself each time the question whether that is one of the people primarily charged with the giving of instructions and the receiving of advice,” he says. “If not, the communication may not be privileged and may have to be disclosed if a dispute arises later. The position of in-house counsel is even more difficult and is not addressed in the judgment.”
A nightmare distinction
USA v Philip Morris and British American Tobacco completes this recent trilogy of cases. In one important respect, the Foyle ruling goes beyond the earlier judgment. “In that case the court said it was too simplistic to just look at the dominant purpose of the original retainer; you just have to look at any advice almost on a communication-by-communication basis,” explains Lawrence.
As a distinction, it could be a nightmare for lawyers to make in practice. Consider document management policies. “How do you distinguish between the practical advice as to whether documents should be held in jurisdiction ‘A’ or jurisdiction ‘B’ and the legal consequences that follow from that?” asks DLA partner Matthew Saunders. “It could be very significant, because the documents may be compellable in one area but not in the other.”
The second headache that the case leaves for the profession is the substantial inroad that it makes into litigation privilege. In the tobacco litigation context, there were no specific claims in the offing despite the fact that cigarette companies clearly faced a growing litigious climate around the world. But the court held that a general apprehension of future litigation was not enough.
Lawrence at Freshfields cites the example of clients who want advice on their disclosure obligations when there are affiliated companies in the US “being sued left, right and centre” and who fear that sooner or later their UK subsidiaries would be caught up in litigation or compelled to produce documents. “Previously, I would have regarded myself as giving advice on legal rights and obligations and also on advising on litigation that was reasonably in contemplation,” he argues. The courts have now said that some of the advice might constitute ‘legal advice’ and some might not – for example, the issue as to whether you can disclose would qualify, but wider advice as to how best to manage your document retention policy might not. “I can just about live with that as a concept,” Lawrence argues. “But what I find very difficult to accept is that the court found no litigation was in contemplation because there was no letter before action or a specific claimant.”
In the hugely emotive tobacco war, unsurprisingly there has been huge cynicism about BAT’s rather euphemistically-named document retention policy, which systematically destroyed a huge database of documents in 1998. This has not just come from anti-smoking campaigners but also from the bench (see box). BAT is accused, together with other companies, of having systemat-ically pulled the wool over the public’s eyes about the health risks associated with tobacco since as long ago as 1953. However, there have been no allegations of wrongdoing made against Lovells, which was made clear by Kenneth Maclean QC, appearing for the US. The firm points out that Foyle was fulfilling his “obligation as a solicitor” to uphold his client’s privilege and confidentiality. Lovells is appealing the ruling. (Somewhat ironically, Lovells is also acting for the liquidators of BCCI in Three Rivers.)
It has proved easy for commentators to decry the tobacco industry lawyers for hiding behind legal principles and claims of innocent housekeeping to allow their clients to keep unacceptable areas of business practice hidden. But commercial lawyers regard document retention policies as pretty standard fare. “I don’t find anything unusual about advice being given by litigation lawyers to a client who was not being sued or receiving any explicit threat about managing documents – that’s what I do and have done extensively,” comments DLA’s Saunders. For example, the lawyer points out that he has advised a client where there was a gap of one and a half years before a client became worried and the first threat was made. “We specifically advise clients to come to us early, when they think litigation may be in the offing,” he adds.
In the BAT case, Brooke LJ reminded the judge who is likely to hear the evidence, along with the US judge-examiner, that they “proceed with care”. “It must be remembered that it is the duty and pleasure of the English court to respond positively to a letter of request if it can,” he added. Should Foyle be questioned, there is nothing to stop him arguing that privilege covers each point.
Apparently, Lord Saville, chairman of the Bloody Sunday Inquiry (into the deaths of 14 civilians after a civil rights march in Derry, Ireland in 1972), has sent out a copy of the Three Rivers judgment to the small army of lawyers currently involved. One QC predicted that the case had “immense implications” for the cost and length of the inquiry and also for the well-being of every important witness with legal representation.
“It’s almost as if you’re going back to the beginning of the inquiry and rewinding it, if it does apply, and you’re going to be thinking how many dozens or hundreds of witnesses are going to have to be recalled, after a process of disclosing all their dealings with their lawyers, which itself could take months,” he told The Guardian. “I’d think the soldiers are absolutely petrified about this.”
A changed world
Certainly, the indications are that the courts will now take “a more interventionist approach”, predicts Jonathon Crook, a banking and financial services partner at Eversheds. “But the court doesn’t give any guidance as to how that might be done, and that’s a problematic area,” he says. “How does the court fairly assess the question of privilege?” Eversheds specialises in inquiries and investigations and is acting for the Bloody Sunday Inquiry (although Crook is not involved).
“It can’t be a matter for the judge, because if he looks at the document in question to determine whether or not privilege has properly been claimed, then that in itself is possibly prejudicial to the case,” says Crook.
If there has to be a separation of the judge who determines privilege and the one who adjudicates, then inevitably there will be significant cost implications, Crook believes, especially if there is satellite litigation as a result.
|Privilege - the Aussie rules|
|The anti-smoking lobby has been quick to condemn what it views as the cynical deployment of legal professional principles to allow the industry to cover its tracks. |
The issue of lawyers and their document retention policies surfaced rather spectacularly in the Australian case of the dying smoker Rolah McCabe against BAT. In March 2002, Justice Eames found for McCabe, and in a withering judgment damned BAT's defence because he found it had "subverted" the process of discovery and destroyed or denied documents to the plaintiff that would have been helpful to her case. Therefore, she could not get a fair trial. The judge was massively critical of the the conduct of Australian firm Clayton Utz and singled out Brian Wilson, the partner who advised on BAT's document retention policy. He also waived any claims to privilege. A jury awarded McCabe damages of A$700,000 (£291,100).
But a speedy nine months later, the Victorian Court of Appeal overturned the first finding of document destruction. The court rejected the judge's finding of a "sinister purpose" underlying BAT's document retention policy and accepted the company's assertion that it was an innocent housekeeping policy. While Justice Eames' caustic dressing down of lawyers appealed to commentators, the legal community found it an eccentric and emotional response to the case as opposed to an application of legal principles.
"If a lawyer is devising a [document retention] policy as a smokescreen - if you pardon the pun - to avoid and evade our disclosure obligations, then an Australian judge might see this as 'legal advice'," says Emilios Kyrou, a partner at Australian firm Mallesons Stephen Jaques. "But if the purpose is to breach the law, then that comes within a well-recognised exception to privilege. Unlike what appears to be happening in England, where the judges are tinkering with what constitutes 'legal advice', our judges would take a more conventional approach that the legal advice is tainted."
As for the Three Rivers scenario, Kyrou reckons that an Australian judge would seek to characterise the nature of the advice. "Accordingly, if a client sends a draft media release to a lawyer and asks the lawyer to advise on whether the content of the media release could give rise to legal complications, the lawyer's advice would be privileged," he says. "On the other hand, if the client asks the lawyer to improve the media appeal or grammar in the media release, the lawyer's advice would not be privileged."