Fighting To Gain And Retain In-House Privilege

Wednesday, November 1, 2006 - 01:00

The purpose of this short article is (1) to outline the current legal situation regarding in-house privilege in England, (2) to explain why it is necessary to fight to gain and to retain such privilege, (3) to recommend some practical ways of doing this successfully and (4) to illustrate by some examples the risks faced by in-house lawyers on the privilege battleground.

Current Law In England RelatingTo In-House Privilege

Attorney-client privilege (usually referred to in England as 'legal professional privilege') is an ancient right that is deeply embedded in English law, by which is meant that confidential communications between lawyers and their clients may normally not be disclosed, without the client's consent.It is a fundamental substantive right, considered as one of the principal constitutional safeguards of the rights of citizens, so much so that it takes precedence over most other public interest and policy considerations, in both civil and criminal cases.1

There are narrow exceptions for legal advice which relates to the commission of fraud and crime (especially those relating to offenses against children and money laundering offenses).2

Nevertheless, the subject of privilege was given a severe beating in England by the Court of Appeal in the Three Rivers (BCCI) litigation. This litigation involved a claim brought by the liquidators of BCCI against the Bank of England for misfeasance in public office. Privilege, however, came fighting back in the House of Lords and the basic principles understood by lawyers in England have now been reconfirmed.3

It is important to understand that in English law attorney-client privilege applies to in-house counsel, who are accorded the same status as external counsel for these purposes, so long as they are members of the Bar or the Law Society and act as legal advisers. The Crompton case in 1974 clarified that in-house lawyers have the same duties and responsibilities as external lawyers.4

The range of lawyers whose clients are entitled to the privilege is quite wide and extends to paralegals who work as members of in-house legal teams, so long as they are acting under the supervision of a member of the Bar or Law Society.Importantly, in an international landscape, it also includes lawyers who practise outside the United Kingdom.

The concept of privilege in English law has two principal strands:

  • Legal advice privilege, which in general corresponds in the United States to attorney-client privilege and certain aspects of the work product doctrine; and
  • Litigation privilege, which probably has no specific U.S. analogue, as such.
  • The distinction between legal advice privilege and litigation privilege is very important, under English law. Legal advice privilege is restricted to communications directly between the lawyer and the client. Litigation privilege may extend to include communications with third parties who are not the client.5Litigation privilege only arises when litigation is pending or is contemplated. The Courts have set a high standard for meeting this test. For example, in the recent Philip Morris litigation6 , although there was a well-known and general worldwide threat of litigation connected with the tobacco industry, including Philip Morris, the fact that there had not been a 'letter before action' (namely a formal written communication threatening litigation before instituting it) or any specific intimation of litigation in the UK, meant that certain documents were not considered to be litigation privileged because litigation was not specifically pending or in contemplation.

    In this context, it is important to bear in mind the whole subject of internal investigations, which often are carried out in advance of litigation and with litigation simply as a possible next step. This is a subject that in-house lawyers are often involved with and, perhaps surprisingly to some U.S. readers, litigation privilege only arises under English law if there are adversarial proceedings actually in contemplation. Case law explains that an internal investigation, just by itself, would not give rise to litigation privilege. It follows, therefore, that if, as an in-house lawyer, you conduct an internal investigation, including interviewing employees of the company, those witness statements that you prepare which are effectively with a third party and are not strictly speaking part of your 'client' would not be protected by privilege. In the Three Rivers (BCCI) litigation, the Bank had set up something called the Bingham Inquiry Unit, to conduct the 'internal' investigations. The House of Lords (acting in its capacity as Supreme Court) concluded that that Unit, and not BCCI itself, was the 'client' for the purposes of privilege and therefore communications with any other party during the investigation that took place would not be protected by privilege.

    It is also important to bear in mind that England is subject to the laws of the EU, including the decisions of the European Court of Justice, and the impact of the AKZO Nobel case, now pending before the ECJ, will, when the decision is finally handed down, have legal repercussions in England (where the case originally arose), in the area of privilege, and will have effect in all EU member countries.7 In essence, the ECJ has shown itself unwilling in that antitrust case to recognise attorney-client privilege with respect to certain documents held by in-house counsel, in England. The ultimate decision in the case, when and if there is one, is awaited with as much interest in Europe as if, in the U.S.A., a fundamental question of in-house privilege were being decided by the U.S. Supreme Court, with binding effect upon all the 50 states.

    While all EU countries are subject to EU law, it is also important to understand that each separate European country treats this subject in a different way.In many civil code jurisdictions, the equivalent concept is known as 'professional secrecy.'It differs from the concept of privilege in a number of important respects. For example, the right and the obligation for professional secrecy belong to the lawyer, whereas in the case of privilege it belongs to the client. It is therefore important to ensure that the local laws are properly understood.It is equally important to recognize that, in connection with, for example, antitrust or competition issues, the European landscape is complex. Generalizations are dangerous and, whereas numerous countries in Europe do now have written antitrust leniency programs, there is little detail about issues such as waiver of privilege or its equivalent. There is nothing in Europe which corresponds to the Thompson Memorandum and nothing which corresponds to the U.S. Federal Sentencing Guidelines, which at least are both uniform in all 50 U.S. states.

    All these issues are evolving and make the whole area of privilege in Europe quite worthy of the battleground phrase: the fog of war. To attempt to achieve greater clarity in this area, we have prepared a booklet entitled Attorney-Client Privilege in Europe: An Eversheds Guide to the Different Duties and Issues (38 countries in all, including all 25 EU countries, plus Russia and Turkey). We would also refer you to the recently published IBA publication, Privilege and Confidentiality: An International Handbook .

    Steps To Take In The Fight To Obtain Privilege And To Retain It

    Despite the difficulties, privilege is a right worth fighting for.To do so, it is necessary to understand the battleground on which you fight. The subject of privilege on a global legal landscape is now very complex. There was a time when it was quite simple. In England if you were a lawyer it was generally assumed that your communications were privileged. Now the law is more sophisticated and privilege challenges are more likely to occur. As a general counsel of a multi-national corporation, you also need to have a thorough understanding of the international dimension. Not only do you have to understand the laws of your own jurisdiction, but you need to understand the laws of each jurisdiction where your employer does business.

    Like an army going on manoeuvres, it is important that your legal team understands this subject and also acts out and rehearses scenarios that it might encounter. Eversheds has developed just such a training concept called 'Morning From Hell.' During a half-day session, we put general counsel through their paces by introducing difficult scenarios that they might face. We used this sort of training to improve the knowledge and awareness of our lawyers in the context of Dawn Raids. In the AKZO Nobel case, one of our Eversheds lawyers was called upon to handle the Dawn Raid at the company's premises in Manchester. While it was in progress, the lawyer was accused by the officers of the European Commission with 'obstruction' (for trying to protect privileged information, rather than just caving in to their overbroad demands). The representatives of the EU Commission (or the Office of Fair Trading in England) can be very aggressive, and it is important that you have your wits about you and know when to stand your ground. It is important that the whole of your corporate team, in-house and external law firm, all understand the issues of privilege and what steps they can take to protect a company's interests, both in advance and while a threat to privilege is actually unfolding.

    Gain Without Pain

    This subject requires great precision, planning and care, as well as some early morning courage. In particular, thought should be given to the following.

    Who is your client? Are you sure that your position is well documented and consistent? It is not enough to assume that the 'client' is the company and all its employees. As mentioned above, in the BCCI litigation, the Bingham Inquiry Unit was regarded as the client and no one else. If you communicate outside that specific 'client' group or entity, there will be no privilege to protect those communications.

    Do you have the correct legal context? This concept of the 'legal context' was developed in the BCCI case. In-house lawyers can have mixed titles and mixed roles and give mixed legal/commercial advice. In-house lawyers are often called upon not only to give pure legal advice but also to comment on more commercial matters, as part of the same package of advice. It is, therefore, important to establish the correct legal context if there is any doubt. Be meticulous about document management and descriptions, including separate well labelled files, that will be easier to segregate and protect in the event of a sudden raid by the government.

    What are you being asked to do and with what objectives in mind? As mentioned above, for example, litigation privilege in England does not include an internal investigation, as such. It is important, therefore, to be clear about the tactical tasks that you are undertaking and see them as part of a strategic whole.

    Privilege that is often so hard won can all too easily be lost through inadvertent waiver.8If information of a privileged nature is too widely disseminated, it loses its essential quality of confidentiality and the client will therefore risk or lose protection.

    In cases of doubt, there may often be an extra layer of protection for privilege by ensuring that the core confidences to be protected pass only between the top company management and their outside counsel and that the files are maintained by the outside counsel.

    Costs And Risks

    It is often argued that in-house lawyers in Europe should have the same benefits of attorney-client privilege (and thus have equally safe access to the same free flow of attorney-client confidences) as do outside counsel.

    In the field of Regulation and Compliance, the in-house lawyer is often the first person the Regulator seeks out when he comes knocking at the company's door and is seen as the key 'somebody' who should know the law.The Swiss antitrust authorities, at their website, go so far as to say: if we come knocking at you door for a raid we (a) do not recognize privilege for in-house lawyers and (b) we will not wait for your outside lawyers to arrive.

    However, this is not the only scenario that can be 'scary.'The UK rules on money laundering and the 2002 Proceeds of Crime Act have caused great concern and the in-house lawyer is often the person who has to make some of the toughest on-the-spot judgment calls.

    Privilege is a right worth fighting for. Those seeking to diminish or invade privilege know that, too, and are hoping for an easy way over your company's defenses, privileges and legal immunities. Now is an ideal time to review your in-house team, sharpen up their knowledge and understanding of this subject and rehearse 'war games' about what might happen if they receive that early morning call.


    1 Waldron v. Ward (1654), Bolton v. Liverpool Corporation (1833) and many other cases, both historical and modern .
    2 For example , Derby Magistrates' Court, ex parte B [1996] AC 487].
    3 Three Rivers District Council v. Governor & Company of the Bank of England (No. 6) [2004] 3 WLR 1274, and see also various related cases.
    4 Alfred Crompton Amusement Machines Ltd. v. Customs and Excise Commissioners (No. 2) [1972] 2 QB 102, [1972] 2 All ER 353 (aff'd [1974] AC 405 [1973] 2 All ER 1169, House of Lords.
    5 See, for example, Guinness Peat Properties Ltd. v. Fitzroy Robinson Partnership [1987] 1 WLR 1027 (determination based upon the dominant purpose of the communication).
    6 United States of America v. Philip Morris, Inc. et al. [2004] All ER (D) 448.
    7 See, meanwhile, Order of the President of the Court in EC v. AKZO Nobel Chemicals Ltd., + Akcros Chemicals Ltd. [27 September 2004].
    8 For example, Butler v. Board of Trade [1971] Ch 680 (inadvertent disclosure vitiated privilege, under the facts presented).

    John Heaps is the Head of Litigation and Dispute Management at Eversheds . Paul Smith is the Head of Eversheds' Health, Safety and Environment group.John and Paul may both be reached at the London office of Eversheds:Telephone 44-20-7919-4500.

    Please e-mail the authors at johnheaps@eversheds.com and paulsmith@eversheds.com with questions about this article.