The Master of the Rolls, Lord Phillips of Worth Matravers, called for a review of the law of legal privilege this week in a Court of Appeal judgment that narrowed the scope of protection available to clients and their advisers.

The court ruled that communications between City firm Freshfields Bruckhaus Deringer and a special group of employees within the Bank of England dealing with the Bingham inquiry into the collapse of bank BCCI in the 1990s were not covered by legal advice privilege.

Scrapping privilege for public inquiries other than for advice 'related to legal rights and obligations', the court said that where the traditional role of a solicitor had expanded, privilege should be kept within justifiable bounds.

Lord Phillips said: 'We have found the law in this area to be not merely difficult but unsatisfactory.

The justification for litigation privilege is readily understood.

Where, however, litigation is not anticipated, it is not easy to see why communications with a solicitor should be privileged.'

He said there was little reason to fear that ending privilege would inhibit communication between solicitor and client in, for example, conveyancing and wills work.

He added that as 50 years had passed since the law was last scrutinised, it was time for a review.

Colin Passmore, partner at City firm Simmons & Simmons and a leading authority on privilege, warned that the court's ruling represented a major change in approach, which solicitors and clients should be concerned about.

He said: 'It is cutting out privilege from inquiries such as the BSE inquiry, the Hutton inquiry and possibly the Bloody Sunday inquiry.'

He added: 'The real body blow is Lord Phillips' encouragement...

to look into the issue.

The judgment has introduced huge confusion and uncertainty and we need guidance from the House of Lords on how far we are moving.'

Val Davies, a litigation partner at Norton Rose, said: 'The judgment is clearly seeking to restrict the ambit of legal advice privilege.

It is disappointing that it did not answer whether advice for the purpose of protection of reputation in the context of inquiries is covered.'

Freshfields partner John Goddard said the firm was considering with its client whether to petition the House of Lords, having been denied leave to appeal.

He said: 'The judgment decides that communications between a client and its lawyers do not attract privilege in relation to inquiries, unless it is advice relating to legal rights and obligations - and it does so retrospectively.

That means there are clients and lawyers dealing with inquiries who believed their communications were privileged at the time they were made.'

By Rachel Rothwell