Recent cases on legal professional privilege drive home some key lessons from last year’s SFO v ENRC case, many of which are particularly relevant for in-house lawyers. Alan Sheeley and Emilie Jones look in detail at several judgments, and provide a number of important practical take-away points.
Businesses breathed a sigh of relief last year when the Court of Appeal (CA) overturned the controversial High Court decision on litigation privilege in SFO v ENRC  EWCA Civ 2006. Since then, however, the spate of decisions arising from challenges to legal professional privilege has continued unabated. This emphasises that organisations dealing with sensitive internal issues must consider privilege from the outset if they are to minimise unwanted disclosure to third parties.
Legal advice privilege (LAP) applies to confidential communications between a lawyer and their client created for the dominant purpose of giving or receiving legal advice. In general, the lawyer may be in either private practice or in-house. No dispute needs to be on the horizon. LAP encourages businesses to speak candidly when seeking advice from their lawyers.
However, LAP has limits. In particular, it only applies to communications between a lawyer and their ‘client’. In a corporate organisation, the ‘client’ is restricted to those individuals tasked with seeking and receiving legal advice on behalf of the organisation. This will not include ‘mere’ employees from whom information is sought when ascertaining facts relevant to an issue, regardless of their seniority. That is true whether the investigation or review is being conducted by a lawyer (whether in-house or external), and even if the information is needed by lawyers to advise.
In ENRC, this meant LAP did not apply to notes of fact-finding interviews carried out by the business’ lawyers as part of their investigation into a whistleblower’s allegations of “corruption and financial wrongdoing”. The employees interviewed were not the ‘client’. The CA was critical of this narrow definition, but found that it represents the law until the Supreme Court has the opportunity to revisit the position. ENRC is not going to the Supreme Court, and we are not aware of any other case likely to do so in the near future. The ‘client’ therefore remains narrow.
This can be particularly challenging for in-house lawyers. When an external law firm is appointed, a ‘client team’ is commonly established in the formal engagement process. However, an in-house lawyer’s role and relationships within the business can be less clear-cut. Sometimes, an in-house lawyer will be the designated ‘client’ instructing external lawyers and receiving their privileged advice. This may involve gathering information from non-‘client’ employees, an exercise which will not generally attract LAP. In other circumstances, the in-house lawyer may themselves be giving legal advice. Requests to do so may come from a range of sources within the business, not all of whom will necessarily be the ‘client’. Sometimes, the in-house lawyer may wear different ‘hats’ or their role may shift in the course of a matter.
Some of these difficulties were illustrated by Glaxo Wellcome UK Ltd v Sandoz Ltd  EWHC 2747 (Ch). A company’s in-house lawyer sought information from an employee, apparently in order to provide it to external lawyers who were advising. A claim to LAP in those information-gathering communications failed. The judge was not persuaded by an argument that the employee was authorised to seek advice from the in-house lawyer where it was relevant to the performance of their job functions, and could be described as a ‘client’ in those circumstances. On this occasion, the employee was not the ‘client’ tasked with obtaining the relevant legal advice from the external lawyers.
This highlights that an individual may be an in-house lawyer’s ‘client’ for some purposes, but not others. It also emphasises that where an in-house lawyer is the ‘client’ for the purpose of seeking external legal advice, any information gathering they do internally may not be privileged, unless perhaps the in-house lawyer is also advising, or litigation privilege applies.
Another issue for in-house lawyers is that they may perform both legal and business roles. It is well established that advice given as a ‘man of business’ is not privileged legal advice. However, in practice it can sometimes be difficult to distinguish between advice on what should sensibly be done in the context of the business’ legal rights and obligations, which can be privileged, and purely commercial advice, which will not be.
This issue is not exclusive to in-house lawyers, as was illustrated recently by UTB LLC v Sheffield United Ltd  EWHC 914 (ChD), where an external lawyer also acted as a client’s man of business and was himself a director of joint venture companies in which (simplifying for present purposes the corporate structure) the client was a shareholder. The disclosure exercise involved an apparently detailed exercise in distinguishing between actions undertaken as a lawyer and actions undertaken in a business capacity. However, the issue is even more common for in-house lawyers.
The difficulty may recently have become more acute. There has been debate, including in the CA in ENRC, about whether there is a ‘dominant purpose’ test for LAP. In the recent decision of Jet2.com Ltd v Civil Aviation Authority  EWHC 3364 (Admin) and  EWHC 336 (Admin), Mr Justice Morris found that there is: for LAP to apply to a communication, the seeking or giving of legal advice must be its dominant purpose, and not just one of its purposes.
As a result, where an in-house lawyer is consulted on an issue with both legal and commercial angles, the question will arise whether the purpose of consulting them is principally to obtain legal advice or principally for commercial input. If the latter, LAP will not apply.
The Jet2 case also considered the status of internal communications with multiple recipients, including both legal and non-legal staff. If the dominant purpose of a multi-addressee email is to seek advice from a lawyer, with others copied in for information only, LAP is likely to apply. If, however, the dominant purpose of the email is to seek commercial views, then the fact that a lawyer is one of the recipients will not protect the email from disclosure, even if the reason for including the lawyer is to obtain their legal advice.
It will be interesting to see if the CA revisits these issues, given that in ENRC it did not consider a ‘dominant purpose’ test necessary in the context of LAP, albeit it did not have to finally determine the point. For now, it must be assumed that such a test will apply.
The non-privileged status of purely commercial discussions has also arisen recently in relation to the other form of legal professional privilege: litigation privilege. Litigation privilege applies to confidential communications created for the dominant purpose of seeking information or advice in connection with the conduct of litigation which is ongoing, pending or “reasonably in contemplation”.
In WH Holding Ltd v E20 Stadium LLP  EWCA Civ 2652, the CA held that internal emails between board members discussing the possible commercial settlement of a dispute did not attract litigation privilege. In doing so, the court focused on a part of the test for litigation privilege which has previously received little attention, namely that the communication must be “for the purpose of obtaining information or advice”. Since the communications in question here apparently involved neither, they did not attract litigation privilege.
This decision has been controversial. Many organisations may have assumed that such discussions would be privileged, particularly following the much-welcomed confirmation by the CA in ENRC that communications relating to avoiding or settling a dispute can attract litigation privilege just as much as communications relating to defending proceedings. The E20 decision is not understood to be going to the Supreme Court so, for now at least, it is authoritative.
The practical impact of the decision should not, however, be overstated. It has long been dangerous to make a blanket assumption that once there is a dispute, all discussions relating in some way to it will be protected by litigation privilege. Moreover, the court recognised that if a communication reveals the nature of privileged advice or information obtained, it will generally be privileged. Since it is rare for internal discussions about settlement to make no reference to information or advice obtained in relation to the dispute, the problem in E20 is unlikely to arise often.
The risks which arise, in the context of LAP, from communications with both legal and commercial purposes, have already been discussed. Activities with a dual purpose also continue to trouble the courts when considering the ‘dominant purpose’ test in the context of litigation privilege.
In ENRC, there were arguments about whether anticipated criminal litigation was the dominant purpose of the internal investigation, so that litigation privilege should apply. The first instance judge had identified other purposes to the investigation, such as compliance and governance, which she regarded as distinct, non-litigation purposes. The CA, however, took a more commercial, pragmatic approach, recognising that the existence of these related purposes did not mean that the dominant purpose was not litigation.
This continued the approach in Bilta (UK) Ltd (In liquidation) v Royal Bank of Scotland plc  EWHC 3535 (Ch), where the court took “a realistic, indeed commercial, view of the facts” and upheld a claim to privilege made by RBS, represented by Pinsent Masons, in respect of the products of an investigation. The investigation had been conducted by the bank after receiving a letter from HM Revenue & Customs (HMRC), alleging that the bank knew or should have known that it had participated in transactions connected with fraud. The court rejected an argument by Bilta that what the bank was really doing was trying to persuade HMRC not to issue a tax assessment and found that this was at most a subsidiary purpose, the dominant purpose being anticipated litigation with HMRC.
However, the recent decision in Sotheby’s v Mark Weiss Ltd  EWHC 3179 (Comm) illustrates that these questions are highly fact-sensitive, and that investigations or reviews which have more than one purpose – which, in practice, will often be the case – remain at risk of a finding that litigation privilege did not apply.
In Sotheby’s, litigation privilege was held not to attach to communications between Sotheby’s and an art expert to ascertain the authenticity of a painting which had been sold through the auction house. One of the purposes of that correspondence was contemplated litigation with the seller of the painting. However, another purpose was to decide whether to act under a clause in the contract with the buyer, which provided that if the painting was counterfeit, the sale would be rescinded and the purchase price repaid. The court considered this a commercial purpose – reminding us that considering whether rights or remedies under a contract have been triggered is not necessarily a litigation purpose, even where litigation is likely to follow if the decision goes a particular way.
The court held that Sotheby’s had not established that the litigation purpose was the dominant of these two purposes. As a result, litigation privilege did not apply.
There are a number of practical take-aways from these decisions to consider.
Alan Sheeley is a partner and head of civil fraud and asset recovery, and Emilie Jones, a senior practice development lawyer, both at Pinsent Masons LLP.