A recent misfeasance action has stirred up a debate over legal advice privilege, writes Linsey Macdonald

A Court of Appeal judgment on an interlocutory application in the case of Three Rivers District Council & Others v The Governor and Company of The Bank of England (No 5), handed down on 3 April 2003, has clarified the extent to which documents can be excluded from disclosure on the grounds of legal advice privilege.

At first instance, on 13 December 2002, Mr Justice Tomlinson had found that legal advice privilege extended beyond communications between solicitor and client, to encompass documents prepared by the Bank of England's employees for the dominant purpose of obtaining legal advice.

On that basis, he decided that the Bank was entitled to withhold disclosure of such documents.

The Court of Appeal has ruled otherwise.

The Three Rivers case (see [2003] Gazette, 12 June, 37), which is set down for a lengthy trial starting in January 2004, arises out of the collapse of the Bank of Credit and Commerce International (BCCI) in July 1991.

This interlocutory application concerned a request by the claimants for disclosure of the documents produced by the Bank of England in connection with the Bingham inquiry, the inquiry appointed by the Treasury and the Bank into the supervision and subsequent collapse of BCCI.

When the inquiry began, the defendants had appointed three Bank of England officials to deal with all the communications between the Bank and the inquiry.

The three were collectively known as the Bingham inquiry unit (BIU) and their communications with the inquiry were the subject of legal advice from the Bank of England's solicitors and counsel.

Legal professional privilege

The Bank of England sought to claim privilege in respect of the documents prepared by the BIU, which were not communications with its legal advisers but were instead generated to provide information to those legal advisers.

There was evidence before the court that the BIU's fact-gathering task often involved considerable internal BIU drafting before its submission to the Bank's legal advisers.

The Bank of England did not claim that these 'background' documents were prepared in contemplation of litigation, affording them the protection of litigation privilege.

Instead, it claimed legal advice privilege on the grounds that the material was all part of the process of obtaining legal advice.

The key question for the judge at first instance was whether legal advice privilege extended to material brought into existence for the dominant purpose of obtaining legal advice, even though the material itself was not a communication between legal adviser and client.

Mr Justice Tomlinson held that the purpose of legal advice privilege was to enable a party to communicate with his solicitor in an unfettered way, and that the dominant purpose test applied to legal advice privilege, as well as to litigation privilege, and the issue of whether a document falls within the retainer is relevant to that test.

He concluded that there was no need for a document to be a communication for legal advice privilege to apply; a document created to prepare another document that would be communicated to the client's legal advisers would also be covered by legal advice privilege.

Accordingly, he ruled that the 'background' documents prepared by the BIU came within the ambit of legal advice privilege.

Court of Appeal decision

On appeal, the Court of Appeal had to rule on the parties' differing interpretations of the scope of legal advice privilege.

The claimants argued that preparatory materials obtained before communication between client and legal adviser did not come within legal advice privilege, even if they were prepared for the dominant purpose of being shown to a client's solicitor.

The Bank of England argued that any document which was prepared for the dominant purpose of obtaining legal advice was covered by legal advice privilege, whether or not it was communicated to the adviser.

Giving judgment, Lord Justice Longmore first reviewed three 19th century authorities - Anderson v Bank of British Columbia (1876) 2 Ch D 644, Southwark & Vauxhall Water Company v Quick (1878) 3 QBD 315 and Wheeler v Le Marchant (1881) 17 Ch D 675 - and concluded that these were authority for the principle that legal advice privilege could not be claimed for documents other than those passing between the client and his legal advisers or documents which evidenced the contents of such communications.

Reference was then made to the House of Lords' decision in Waugh v British Railways Board (1980) AC 521.

This case introduced the 'dominant purpose' test (following the dissenting judgment of Chief Justice Barwick in Grant v Downs (1976) 135 CLR 674), namely that a document produced with the dominant purpose of using it to obtain legal advice or to conduct litigation should be privileged.

Lord Justice Longmore stated that the dominant purpose principle could not be read as a statement in relation to legal advice privilege, but only litigation privilege.

He went on to conclude that the 19th century authorities emphasised that the need for a client to 'make a clean breast' to his legal adviser was paramount when litigation either existed or was contemplated; and that it was in the public interest that the courts should come to correct judgments on the basis of all the relevant material.

It was important that legal advice privilege be confined to its proper limits, and the judges of the 19th century thought it should only apply to communi-cations between a client and his legal adviser.

It was not open to the court to extend the privilege.

The remaining 20th century authorities (including Balabel v Air India [1988] Ch 317) were not authority for extending the privilege to cover documents such as those in issue in the present application.

Consequent-ly, the Bank was not entitled to claim privilege in relation to any of the documents in dispute.

The Court of Appeal's decision highlights a key potential problem for legal advisers and clients in relation to inquiries, which are non-adversarial and therefore not covered by litigation privilege.

Legal advice privilege will not, following this decision, extend to documents which do not fall within the description of solicitor-client communications.

Accordingly, any employer who, for example, considers commissioning a document from an employee in circumstances where no litigation is pending or contemplated, should be aware that the status of such a document may be called into question in any subsequent litigation.

Linsey Macdonald is an assistant solicitor in the commercial disputes group at City-based law firm Richards Butler