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Survival of the fittest: privilege bounces back

Posted: 29/11/2019


As rugby fever swept the nation, legal advice privilege once again found itself front and centre on the judicial pitch. In Addlesee & Ors v Dentons Europe LLP [2019], a strong bench in the Court of Appeal held that legal advice privilege survived the dissolution of the client company, and disclaimer by the Crown.

Background

A large group of investors invested in a scheme marketed by Anabus Holdings Ltd, a Cypriot company (Anabus). Salans LLP (later renamed Dentons Europe LLP (Dentons)) acted for Anabus at the relevant time. Anabus was dissolved in Cyprus in January 2016. In May 2016, the investors cried foul, issuing proceedings against Dentons claiming damages for deceit or negligence. They sought disclosure of documents passing between Salans and Anabus which were now in Dentons’ possession.

It was accepted, for the purposes of the litigation, that the documents in question attracted legal advice privilege at the time they came into existence (and were not off-side by operation of the iniquity exception). The question was whether legal advice privilege subsisted notwithstanding the dissolution of Anabus. At first instance, Master Clark held that it did, distinguishing the decision of the Upper Tribunal in Garvin Trustees Ltd v The Pensions Regulator [2014] to the contrary.

The investors appealed, challenging whether Master Clark had correctly distinguished Garvin. However, the Court of Appeal (then comprising Leveson LJ, Lewison LJ and Floyd LJ) expressed concerns as to whether Garvin had indeed been correctly decided. They stopped the clock, and acceded to Dentons’ application for permission to serve a Respondent’s Notice taking the point. In the meantime, Sir Brian Leveson retired, and Hamblen LJ was brought on in his place.

The reconstituted court considered the following questions:

  • What happens to legal advice privilege attaching to communications between a company and its lawyers, once that company has been dissolved; and the Crown has disclaimed all interest in its former property? [para 1]

and, more generally,

  • “…legal advice privilege having attached to a communication by reason of the circumstances in which the communication was made, [whether] the communication remains privileged unless and until privilege is waived; or whether the privilege is lost if there is no person entitled to assert it at the time when a request for disclosure is made”. [para 3]

Setting the ground rules

Lewison LJ kicked off by considering the rationale for legal advice privilege. Quoting Lord Scott in the landmark case of Three Rivers, he held that “legal advice privilege should be given a scope that reflects the policy reasons that justify its presence in our law”: namely, that you must be able to consult your lawyer in confidence, secure in the knowledge that what you tell your lawyer will never be revealed without your consent. 

This phase continued with a review of the authorities in support of this principle, described by Lord Taylor of Gosforth CJ in R v Derby Magistrates Court [1995] as “a fundamental condition on which the administration of justice as a whole rests”. The authorities were clear that once privileged, always privileged: it would undermine the purpose of privilege if a lawyer had to qualify their assurance of confidentiality to the client.   

Lord Hoffman in R (Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] characterised privilege as a fundamental human right, “a necessary corollary of the right of any person to obtain skilled advice about the law. Such advice cannot be effectively obtained unless the client is able to put all the facts before the adviser without fear that they may afterwards be disclosed and used to his prejudice” [para 7]. The client must be secure in this knowledge at the time the communication is made.

The Privy Council had also made clear that it is the documents/communications themselves that are privileged, because they were created for the purpose of giving or receiving legal advice (B v Auckland District Law Society [2003]). Only voluntary production destroys the privilege: if they are not produced voluntarily, production cannot be compelled. According to the Supreme Court in R v (Prudential plc) [2013] at para 17, if a document qualifies for privilege, that privilege is absolute unless the client waives it, statute overrides it, the iniquity principle applies, or another miscellaneous exception applies (issues surrounding testamentary capacity, for example).

Marking the pitch

The investors accepted that legal advice privilege is absolute, provided that the relevant communication falls within the ambit of legal advice privilege. What then are the boundaries of legal advice privilege?

Touch judge Lewison ruled that the boundaries must be determined in accordance with the underlying policy. As a general rule privilege attaches to communications at the time they are made, and remains unless the client consents to its waiver. However, where a client consults his lawyer with a criminal, fraudulent or iniquitous purpose, the communication does not attract privilege at all.

Therefore, “the boundaries of legal advice privilege, within which it is absolute unless and until waived, are that the communication in question must be a communication between lawyer and client, made in connection with giving or receiving legal advice, otherwise than for an iniquitous purpose” [para 28].

Extra time? Successors and others

The Court of Appeal next turned its attention to whether privilege can be ruled “out” for any other reason.

 It is established law that privilege does not cease on the death of a living person (Bullivant v Attorney General for Victoria [1901]): absent a waiver, the privilege “remains” [para 34]. The deceased’s personal representatives have the power to waive privilege, but it is in the public interest for a testator’s provisions and motivations to remain confidential after their death.

What happens if the client goes bankrupt? In Avonwick Holdings Ltd v Shlosberg [2016], the Court of Appeal held that privilege did not pass to the trustee in bankruptcy of a person to whom it belonged prior to his bankruptcy. Privilege is not property; it is a personal right of the individual, attached to the documents/communications in question.

On the touchline?

The next boundary that the investors sought to test was the proposition that privilege, as a right, must belong to someone; and if there is no legal person who is capable of asserting legal advice privilege, then the privilege ceases to exist.

Despite summoning up a dream team of authorities and eminent judges, the investors failed to convince the Court of Appeal of this argument. The right (i.e. the privilege) is created at the time the communication is made. The immunity from production thus attaches to the communication. Once the client ceases to exist, the only remaining question is whether there is anyone who has the right to waive it. To hold that privilege is lost if there is no person entitled to assert it, would “amount to a retrospective redrawing of the boundaries of legal advice privilege in a particular case. This subverts the policy that the boundaries must be clear and immutable at the time when the communication is made” [para 47].

Collapsing scrum

Unable to reach the try line on that argument, the investors attempted a secondary line of attack: contending that where the court is called upon to consider whether privilege applies to a novel situation, there is a policy choice to be made. The court needs to find the “proper point of balance between two opposing imperatives, making the maximum relevant material available to the court… and avoiding unfairness to individuals by revealing confidential communications between their lawyers and themselves” (Three Rivers, para 86).

Three Rivers was authority that privilege should be “strictly confined within the narrowest possible limits consistent with the logic of its principle”. More recently, in Prudential, the Supreme Court refused to extend the scope of legal advice privilege to legal advice given by accountants, showing that the law does not favour extending legal advice privilege to the greatest possible extent.

Policy, the investors argued, came down on the side of refusing to extend privilege to a defunct corporation. First, unlike the death of an individual, a company’s dissolution is under its own control. Secondly, by the time a corporation is dissolved, its affairs should usually have been fully wound up (solvently or otherwise), and any overlooked assets will vest in the Crown as bona vacantia: there is no estate to be protected for any beneficiaries. Neither does it have any goodwill or reputation to protect, or a moral obligation to any survivors. Thirdly, there is no reason to believe its human representatives would be deterred from being candid with their legal advisers by a conclusion that privilege does not survive the dissolution of the company.

Unfortunately for the investors, Lewison LJ kicked this idea firmly into touch too. Privilege attaches to the communication at the time when it is made. It is not a question of extending the scope of privilege, but of extending the circumstances in which privilege, once attached to a communication, ceases to apply. The law’s “firm position” is that privilege will only cease if waived by the client or overridden by statute. “Derby Magistrates holds that the balance was struck once and for all in the 16th century; and is insistent that no further exceptions be made” [para 52].

The investors’ argument came very close to the argument that privilege comes to an end when the client no longer has a “recognisable interest” in it. This argument was rejected in Derby Magistrates and Nationwide Building Society v Various Solicitors [1999] because it undermines the principle that the lawyer must be able to assure his client that the communications covered by legal advice privilege will never be revealed unless he consents. In Derby Magistrates, Lord Taylor was insistent that no exceptions to the “once privileged, always privileged” principle should be created; so the dissolution of a company cannot become an exception.

Finally, what would the knock on consequences be if an exception were made in the case of a dissolved corporation? Creating exceptions would undermine the policy of certainty underpinning legal advice privilege.

One last try

Heading towards the 80th minute, the Court of Appeal turned its attention to the question of whether there was anyone who could waive privilege in the dissolved company’s documents.

Anabus was a dissolved Cypriot company, which meant that the Companies Act 2006 did not apply. The equivalent Cypriot legislation provides that when a company is dissolved, all property and rights vested in or held on trust for it immediately before its dissolution shall be deemed to be bona vacantia and accordingly belong to the Republic of Cyprus.

It was common ground both that Anabus’ assets situated in the UK are governed by English law, and that legal advice privilege should be treated as territorially limited to England and Wales. Because domestic legislation does not apply, common law determines whether or not anything passed to the Crown as bona vacantia: a prerogative right which entitles the Crown to all personal property that has no other owner, by paramount title rather than as a successor in title.

Dentons argued that privilege passed to the Crown as bona vacantia at common law. The policy underlying privilege means that the Crown is to be treated as a successor in title, even if technically it might not be. On that basis, the legal advice privilege passed to the Crown along with the records and papers to which it attached. Although it disclaimed any interest in the underlying property, the Crown had not waived privilege: it therefore remained intact.

The investors counter attacked, citing Avonwick, that legal advice privilege cannot be described as “property”. It is not therefore something which the common law would regard as bona vacantia, and accordingly the Crown acquired no right to either assert or to waive it.

Lewison LJ did not consider this conundrum to be determinative of the case: if the right to waive privilege never passed to the Crown (or, as appeared to be the case, its settled policy is neither to assert nor waive privilege), then there is no one who can or will waive privilege.

On the other hand, if the right to waive privilege did pass to the Crown, it is clear that the Crown had not waived it. The Crown had disclaimed its interest in Anabus’ books and records but was scrupulous to say that privilege was neither waived nor asserted. The investors’ fall-back position that the disclaimer was equivalent to waiver, and destroyed or extinguished privilege, was thus also dismissed.

TMO: Garvin

The Court of Appeal concluded the match by reviewing the decision in Garvin. In Garvin, the Upper Tribunal found that legal professional privilege did not survive the dissolution of a Northern Irish corporation.

In that case, Herrington J had taken as his starting point the proposition that the company itself could not assert the privilege because, having been dissolved, it no longer existed. In order to assert any rights it would need to be restored to the register, and the relevant time limit had expired. Moreover, the Crown had not asserted its right to the legal advice privilege which Herrington J held had vested in it.

Lewison LJ showed Garvin the red card. Herrington J had not referred to Derby Magistrates, or discussed the policy and public interest which underpins legal advice privilege at all: it was not a question of who can assert privilege, but of who can waive it, and whether they have done so. He noted though that Garvin might be right on the facts, but for different reasons. The liquidators of the company had already passed documents to an associated party without imposing any restrictions on the use to which he could put them; meaning privilege had been lost before the dissolution.

He therefore overruled Garvin, and held that the Master was right to refuse to order disclosure (but again, for different reasons).

Extra time: costs

The investors sought to challenge Master Clark’s order that they pay 80% of Dentons’ costs, on the basis that Dentons, having asserted privilege on behalf of the non-existent client, should not have actively contested the application. The Court of Appeal kicked this argument firmly into touch: both Nationwide and Morgan Grenfell are authority that it is the lawyer’s duty to assert privilege. If they incur costs in so doing, they are doing no more than fulfilling that duty.

Moreover, Dentons were the only named party to the application notice, and the relief sought included a mandatory order against them. It would be extraordinary were they not entitled to appear before the court to contest the order. This was a matter of choice, but by appearing they were not overstepping the limits of their duty. Of course, any solicitor who chose to participate in such contested proceedings in the absence of an indemnity from their client or former client did so at risk as to costs in they were unsuccessful.

Lewison LJ upheld the original order as to costs.

Match commentary

This case affirms to all teams that legal advice privilege, once established, remains in existence unless and until it is waived. The Court of Appeal has given clear directions to its judicial linesmen that, following Prudential, the lines remain where they are drawn; but also that they must remain committed to protecting privilege within those boundaries. Simply put: once privileged, always privileged.

Case law

Addlesee & Ors v Dentons Europe LLP [2019] EWCA Civ 1600

Avonwick Holdings Ltd v Shlosberg [2016] EWCA Civ 1138

B v Auckland District Law Society [2003] UKPC 38

Bullivant v Attorney General for Victoria [1901] AC 196

Garvin Trustees Ltd v The Pensions Regulator [2014] UKUT B8 (TCC)

Nationwide Building Society v Various Solicitors [1999] PNLR 52

R v Derby Magistrates Court ex parte B [1995] UKHL 18

R (Morgan Grenfell & Co Ltd) v Special Commissioners of Income Tax [2002] UKHL 21

R v (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1

Three Rivers DC v Governor and Company of the Bank of England (No 6) [2004] UKHL 48

 

This article was first published in the November / December 2019 edition of The Commercial Litigation Journal, and is reproduced with kind permission.


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