The 1988 case of Bank of Nova Scotia v Hellenic Mutual War Risks (“The Good Luck”) established the proposition that legal advice privilege attaches to documents or parts of documents of the client (or the lawyer) which reproduce of otherwise reveal the legal advice which passed between the lawyer and the client, whatever the purpose for which the document came into existence.
Saville J noted that by and large businessmen seek legal advice for the purpose of making or assisting in making commercial decisions and he saw no reason why using privileged documents for the very purpose for which they were obtained, should result in the loss of legal advice privilege. The overriding principle was that clients should be able to obtain legal advice in confidence. Thus, although the advice passing between the lawyer and the client needs to have a legal context, the client can forward on that advice internally for purely commercial or other reasons without losing the privilege.
In the recent case of Financial Services Compensation Scheme Ltd v Abbey National Treasury Services Plc, this issue received further consideration.
The Financial Services Compensation Scheme (“FSCS”) compensated investors who had suffered losses as a result of investing in certain products sold to them via independent financial advisers.
As part of the arrangements under which FSCS paid compensation, the investors assigned to it their claims against the relevant advisers and against third parties. The third parties included NDF Administration Limited (“NDF”) which sold the products and Abbey National Treasury Services Plc (“Abbey”) which was closely involved in the development of the products and, as FSCS alleges, in their promotion and marketing. As assignee, FSCS brought proceedings against Abbey, and related proceedings against NDF, seeking damages for breach of statutory duty, negligence and misrepresentation.
Formal disclosure under the Civil Procedure Rules had yet to take place, but as part of a process of voluntary disclosure FSCS has provided Abbey and NDF with copies of documents from its files relating to 21 randomly selected investors. The documents include FSCS's general claim eligibility checklists completed for each of the investors. The checklists were in standard forms and were completed by FSCS staff when assessing whether an investor was eligible for compensation. The checklists were internal documents which were not provided to the investor or any other party.
There were two forms of checklist in issue in the case. One contained details of the investor and their investment, various questions to be answered yes or no and a section for narrative comments on the claim. On each disclosed checklist in this form, FSCS has redacted three questions and answers (questions 5, 6 and 7) and a short part of the narrative comment. The other form was longer but did not contain those questions. In each case, part of the narrative comment had been redacted.
Although the disclosure was voluntary, the same issues as regards the redactions would have arisen once formal disclosure was given, and so the parties agreed that the issue as to whether the redactions had been properly made should be decided at this stage (Abbey having challenged the redactions).
FSCS had redacted the relevant documents on the grounds of legal professional privilege (the checklists containing the distillation of legal advice given by FSCS's in-house lawyers to its claims teams) and irrelevance.
Richards J noted that, in light of The Good Luck, legal advice privilege extends to any record of the advice within the client's organisation, whether by way of copy, summary or paraphrase and that it doesn’t matter whether the record is made for communication within the organisation or for use within the organisation or purely as a record. Accordingly, he concluded that it did not matter that the redacted material was contained in checklists used by FSCS staff to assess individual claims for compensation.
In Three Rivers DC v Bank of England (No.5), the Court of Appeal noted that the privilege also encompassed any part of a document which “evidences the substance of” the legal advice. Richards J decided that even the answers “yes” and “no” given to the three questions in the checklist would reveal the substance of the legal advice given (even though the questions themselves did not do so) and were therefore privileged.
Richards J then went on to consider the position where a document does not state the substance of the advice but instead is a document from which it is said that the advice can be inferred.
FSCS submitted that if the substance of the advice could be inferred from a redacted passage, it was a passage which "evidenced" the substance of the advice for the purposes of the test set out in Three Rivers DC v Bank of England (No.5) or "revealed" it (see The Good Luck). Reference was made to the following passage taken from Thanki: The Law of Privilege (paras 2.54 – 2.57) and particularly:
"The most obvious of the categories of documents which are not, strictly speaking, actual communications are those documents which constitute secondary evidence of privileged communications."
The argument run by FSCS was therefore that the redacted passage was “secondary evidence” of the legal advice which it has received.
Richards J noted the dearth or authority on how to deal with the case of a document which, rather than stating the substance of advice, is a document from which it is said the advice can be inferred. He raised two considerations which led him to believe that, unless perhaps the inference is obvious and inevitable, in which case the document is in substance a statement of the advice or communication, privilege does not attach to such documents.
Firstly, it is the communication between the client and lawyer which is privileged either in its original form or in a summarised or paraphrased form. A document which does not contain the communication in any form contains nothing to which privilege attaches. The principle of a document “evidencing” a privileged communication has a narrow meaning and is consistent with the meaning in The Good Luck – namely that the document reproduces, summarises or paraphrases the legal advice. It does not have the meaning of “evidence” as in the fact-finding sense of “proving an evidential basis”. Thus, just because the substance of the legal advice may be inferred, does not mean that a document “evidences” that legal advice.
The second consideration raised by Richards J was that inference is usually a matter of subjective judgment. Unless the situation is very clear, it will often be a matter of interpretation as to whether inference can be made. Richards J rejected the notion that a claim to privilege should depend on a subjective assessment. He felt that to accept the idea would be (quoting from another case) to introduce "an unwelcome element of subjective uncertainty". Furthermore, the judge pointed out that there are many documents which are clearly not privileged but from which the substance of legal advice may be inferred. One example which he offered was a minute of a board meeting recording the directors' decision on a particular matter.
There was a reference by counsel for FSCS to a claim for privilege based on inference in the judgment of Finn J in the Federal Court of Australia in Pratt Holdings Pty Ltd v Commissioners of Taxation (2004) 207 ALR (quoted in part in Thanki):
"The second principle which is more directly tied to the protection of communications is that the privilege extends to any document prepared by a lawyer or client from which there might be inferred the nature of the advice sought or given. Examples include communications between the various legal advisers of the client, draft pleadings, draft correspondence with the client or the other party, and bills of costs: Propend Finance, at CLR 569; ALR 597-8."
However, Richards J did not consider that this provided a basis generally for a claim for privilege in any document from which legal advice may be inferred. He felt that it was clear from the examples given in the judgment, that the principle was to have only a restricted application.
On the facts of the case, the judge went on to conclude that by reading question 5 with its answer, it was not the case that the substance of the legal advice could be inferred. However, he did accept that it would be artificial to separate questions 5, 6 and 7 and, when read as a whole, all three questions and their answers were privileged.
Richards J’s conclusion was therefore that, unless the inference is obvious and inevitable, privilege does not attach simply because a document is “secondary evidence” of legal advice.
Finally, Richards J also recommended that the basis of a claim for legal advice privilege should be plainly stated and assertions that a document "evidences" or "reveals" the substance of advice should be avoided.