Three Rivers – a bridge too far?

In Three Rivers District Council & ors. v Bank of England, the courts have recently been required to consider in detail the circumstances in which communications between a client and its solicitors (which might in most circumstances be considered to be highly confidential) should nevertheless be disclosed in legal proceedings.

Every litigation lawyer dreams of finding the "smoking gun": that crucial document which he or she has compelled the other side reluctantly to disclose and which turns the case decisively in favour of his or her client. For many, of course, this remains a dream. Very few cases are decided on the basis of a single hitherto undisclosed document. Nevertheless, the process of disclosure is a key part of civil litigation: cases sometimes settle because of facts which come to light during disclosure of documents by the parties.

In most types of litigation, the court will usually require each party to prepare and serve upon the other a list of documents:

• upon which it relies; or
• which adversely affect its own case; or
• which adversely affect the other party's case; or
• which support another party's case.

Each party must permit the other party to inspect the documents so disclosed unless, among other things:

• the document is no longer in the "control" of the party disclosing it; or
• the party disclosing it has a right to withhold it.

One of the grounds upon which a party may withhold inspection of a document is that it is subject to "legal professional privilege". This has been divided by the courts into two broad categories:

• "legal advice privilege", which protects the confidentiality of communications between solicitor and client for the purpose of obtaining legal advice, irrespective of whether the advice concerns contemplated or pending litigation; and
• "litigation privilege", which only applies where litigation is contemplated or pending and protects communications not just between solicitor and client but also between solicitor or client and a third party.

The Three Rivers decisions concern the first of these two categories.

The issues arose out of litigation in which the liquidators and creditors of BCCI are suing the Bank of England alleging that it is liable to them in the tort of misfeasance in a public office in its role as banking regulator. After the collapse of BCCI, the Government had invited Lord Justice Bingham, as he then was, to conduct an inquiry "into the supervision of BCCI under the Banking Acts; to consider whether the action taken by all the UK authorities was appropriate and timely; and to make recommendations". In order to respond to this, the Governor of the Bank of England appointed three Bank officials (known as the Bingham Inquiry Unit or "BIU" for short) to deal with all communications between the Bank and the Inquiry. For the purposes of preparing the Bank's submissions to the Inquiry, the BIU entered into extensive communications with the Bank's employees and ex-employees. Many of these were sent by the BIU to the Bank's solicitors, who were advising the Bank on the preparation and presentation of the Bank's evidence and submissions to the Bingham Inquiry.

In the subsequent litigation against the Bank, the Claimants sought disclosure of the documents prepared by the Bank's employees or ex-employees and sent to the BIU. The Bank resisted this. It accepted that it could not rely on "litigation privilege" since the Bingham Inquiry was not an adversarial proceeding and therefore not "litigation" for this purpose. It therefore had to rely on the somewhat narrower ground of "legal advice privilege".

At this stage the Claimants did not seek disclosure of documents passing between the Bank and its solicitors, accepting that these were covered by legal advice privilege. As we shall see, however, this was to change.

At first instance, the Judge held that documents prepared by the Bank's employees or ex-employees and sent to the BIU did not have to be disclosed because their "dominant purpose" was that they would be used to obtain legal advice. In April 2003, however, the Court of Appeal reversed this decision, considering itself bound to follow nineteenth century cases to the effect that documents which are brought into existence by third parties (including employees) for the purposes of obtaining legal advice are not privileged unless litigation is contemplated or pending. The "dominant purpose" test, the Court of Appeal said, did not apply to legal advice privilege but only to litigation privilege.

The Court of Appeal could have ended their judgment there. However, they went on to find that the dominant purpose of the preparation of these documents by the Bank's employees and ex-employees was not to obtain legal advice, but to put relevant factual material before the Inquiry in an orderly and attractive fashion.

This second part of the Court of Appeal's judgement had considerable ramifications. The Claimants now argued that if the documents prepared by the Bank's employees and ex-employees were not prepared for the purpose of obtaining legal advice, it followed that the communications between the BIU and the Bank's solicitors in relation to those documents were not for the purpose of taking legal advice either.

They therefore sought disclosure of communications passing between the Bank and its solicitors insofar as such communications were seeking or obtaining assistance or advice as to the manner in which the Bank should appropriately present evidence and material to the Bingham Inquiry. The Bank resisted their requests, but in a judgment handed down on 4th November 2003, the Judge decided in the light of the judgment in the Court of Appeal that the Claimants were entitled to disclosure of these communications.

He decided that legal advice privilege only applied to communications which sought or gave advice concerning rights and obligations and that the dominant purpose of the documents in question was not the seeking and obtaining of legal advice in that sense.

The decision has consequences not merely for the parties involved in the BCCI case but also, potentially, for all those instructing their solicitors in non-contentious matters, for example where a client instructs its solicitor to draw up a consultant's appointment, a sub-contract, or a set of amendments to a standard form of building contract. In the light of Three Rivers it seems that legal advice privilege can only be claimed in respect of communications between solicitor and client if their dominant purpose is to seek or give advice as to rights and obligations. In non-contentious matters, there are many communications between client and solicitor which do not fall within this definition.

There have of course been numerous cases in the past in which a party to litigation has sought access to the other party's solicitor/client correspondence in order to advance its case. In the leading case of Balabel v Air India (1988), for example, the claimant was alleging that it had reached an agreement for an underlease of certain premises with the defendant. It sought disclosure of the defendant's communications with the solicitor it had retained for the transaction, hoping to find evidence confirming the agreement. The Court of Appeal addressed the matter as follows:

"the test is whether the communication…was made confidentially for the purposes of legal advice. Those purposes have to be construed broadly. Privilege obviously attaches to a document conveying legal advice from solicitor to client and to a specific request from the client for such advice. But it does not follow that all other communications between them lack privilege. In most solicitor and client relationships, especially where a transaction involves protracted dealings, advice may be required or appropriate on matters great or small at various stages. There will be a continuum of communication and meetings between the solicitor and client…Where information is passed by the solicitor or client to the other as part of the continuum aimed at keeping both informed so that advice may be sought and given as required, privilege will attach. A letter from the client containing information may end with such words as "please advise me what I should do". But, even if it does not, there will usually be implied in the relationship an overall expectation that the solicitor will at each stage, whether asked specifically or not, tender appropriate advice. Moreover legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context".

In Balabel the Court of Appeal thought that this test would "result in most communications between solicitor and client in, for example, a conveyancing transaction being exempt from disclosure". However, as can be seen, the approach in Three Rivers was, in the end, different. Its definition of "legal advice" seems to be narrower and a "dominant purpose" test has been introduced. It may not have the same result as the Balabel approach. But the reasoning in the relevant part of the Court of Appeal's judgment in Three Rivers is not entirely clear and the question of the right test to apply to decide whether a communication between solicitor and client is covered by legal advice privilege must be regarded as uncertain.

It is understood that the Judge's decision is to be appealed. In the meantime, the litigation solicitor may perhaps be thinking that his or her chances of finding that "smoking gun" have improved slightly. At the same time he or she will be providing practical tips to non-contentious clients on how to try to avoid a situation where some other litigation lawyer has a dream come true.

For further information please contact Peter Long at [email protected]