Legal professional privilege: who is the “client”?

Introduction

In our recent client call on The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) decision, we noted that Hildyard J appeared to suggest that “client” in the context of legal advice privilege may include only those individuals or bodies that comprise the “directing mind and will” of a corporate entity. This would be a radical departure from the existing definition of “client” in Three Rivers v Bank of England (No 5) [2003] EWCA Civ 474, but in addition it is unclear to us how this expression should be interpreted. This article looks, as we promised on the call, at whether the definition of “client” might be further restricted and how “directing mind and will” might be understood in the context of legal advice privilege in the future, if Hildyard J’s comments gain any traction.

While this article focuses on the judgment only so far as relevant to the interpretation of “client” for legal advice privilege, an analysis of the RBS decision in full can be found in this article and conference call.

Background

The Court of Appeal’s decision in Three Rivers (No 5) has been the much criticised authority on the interpretation of “client” for the purposes of legal advice privilege since 2003. It takes a restrictive approach where the “client” is a corporate entity so that only communications between those authorised by the corporate to seek and receive legal advice on its behalf and its lawyers can be protected by legal advice privilege.

In RBS, the communications over which RBS sought to claim privilege were notes of interviews of 124 employees and former employees conducted by RBS’s external US lawyers and in-house counsel. RBS argued that statements made to its lawyers in interviews by employees who were authorised by RBS to make those statements could constitute lawyer-client communications and attract legal advice privilege. RBS contended that the statements were made for the purpose of enabling RBS to obtain legal advice.

Hildyard J held that the interview notes comprised information gathering from employees or former employees which were preparatory to and for the purpose of enabling RBS, through its directors or other persons authorised to do so on its behalf, to seek and receive legal advice.

Hildyard J therefore rejected RBS’s claim to legal advice privilege based on the nature and purpose of the communications and so did not need to consider whether the employees and former employees fell within the definition of “client” - but he made some observations nonetheless.

Hildyard J’s views on who comprises the “client”

It was submitted by the Claimants in RBS that the only individuals whose communications would be treated as “client” communications are those who can be treated as the “directing mind and will” of the corporate entity, whether under the corporate theory of “attribution” or by special designation (as in the case of the Bingham Inquiry Unit in Three Rivers (No 5)).

Hildyard J commented that, in a corporate context, it may be that

“only individuals singly or together constituting part of the directing mind and will of the corporation can be treated for the purpose of legal advice privilege as being, or being a qualifying emanation of, the “client””

and he suspected that

“such a restriction will often reflect reality: a corporation is unlikely to authorise an individual to seek and receive legal advice on its behalf to an individual or body which is not its directing mind and will.”

What is the effect of these statements? They are obiter comments and so at this time they have no impact on the Three Rivers (No 5) position on the meaning of “client”. However, if this interpretation is adopted in future cases, or if litigants argue for disclosure because the alleged “client” was not the “directing mind and will”, how would “directing mind and will” be interpreted?

Hildyard J gave no indication. First, the second quote above is not drafted clearly so it is impossible to interpret Hildyard J’s intention with certainty. Secondly, no other cases on privilege have yet suggested that “client” should be limited to those comprising the “directing mind and will”, except one: Hildyard J placed reliance on a mere footnote in a judgment of Aikens J in Winterthur Swiss Insurance Company v AG (Manchester) Limited (in liquidation) [2006] EWHC 839 (Comm) which - seemingly uniquely - interpreted Three Rivers (No 5) so as to include in the definition of “client” those who are part of its “directing mind and will” (but Aikens J did not explain why he thought that). The only guidance we have is the implication that Hildyard J’s interpretation would further restrict the Three Rivers (No 5) definition of “client”.

While we therefore cannot currently predict with any certainty how this “directing mind and will” analysis will be interpreted in the setting of the law on privilege, we can turn to the case law on corporate attribution for some insight.

The law on corporate attribution

Corporate attribution is the mechanism through which individuals or bodies can be held to be the “directing mind and will” of a corporate entity, and therefore their acts, omissions and behaviours can be attributed to that entity. It has been discussed predominately in the areas of civil, criminal and tortious liability, but it is not a settled area of law.

The “directing mind and will” test was originally set out by Viscount Haldane LC in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 HL: “a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.”

This was developed in HL Bolton (Engineering) v TJ Graham and Sons [1957] 1 QB 159 and Tesco Supermarkets Ltd v Nattrass [1972] AC 153 so that the “directing mind and will” would comprise those that: (1) are identified under the company’s constitution (which may include, for example, directors, managers, secretaries or other similar officers); and/or (2) have been delegated powers (with full discretion) in accordance with the constitutional processes, in which case the delegate represents the “directing mind and will” of the company within the scope of the delegation. This later became known as the “primary rules” of attribution.

After that point, we see case law beginning to widen the interpretation of “directing mind and will” and ascribing greater importance to the context.

The Court of Appeal in El-Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 held that the “directing mind and will” is the person having management and control in relation to “the act or omission in point”, so it can be different people for different activities. The formal position in the company’s constitutional documents as to that person’s status and authority was considered to be highly relevant but may not be decisive.

Subsequently, the Privy Council decision in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 sought to give this wider principle a name: the “special rules” of attribution. This principle has recently been applied by the Supreme Court in Bilta (UK) Ltd (In Liquidation) v Nazir [2015] UKSC 23 and the Court of Appeal in Howmet Ltd v Economy Devices Ltd [2016] EWCA Civ 847.

In Meridian, Lord Hoffmann stated that the strict “primary rules” of attribution are not well suited to all types of legal rules. For our purposes, it surely cannot be right - in large corporate organisations - that only directors or officers and their formal delegates can seek and receive legal advice, as the “primary rules” would suggest. Lord Hoffmann proposed the idea of “special rules” of attribution, whereby the Court has to fashion rules of attribution specific to the particular rule in question (in our case, legal advice privilege). It would do so by interpreting how the rule is intended to apply to a corporate entity based on its language, content and policy, and then identifying the person who was intended to embody that entity for the purpose in question.

It is also worth noting that the term “directing mind and will” can be a misleading one. Lord Hoffmann acknowledged this, saying that while it often may be the most appropriate description of the person designated by the attribution rule, the term itself will not be apt in all situations. Given that this term was originally developed in the early 20th century and early case law applies it to small companies, it necessarily demands re-engineering to fit the large, global corporate “clients” we see claiming legal advice privilege in the 21st century.

Applying the law on corporate attribution to Hildyard J’s judgment

In the absence of any indications from Hildyard J as to how “directing mind and will” should be interpreted, there appear to be two potential options when considered in light of the case law on corporate attribution.

Strict interpretation

The strict interpretation would be to apply the “primary rules” of attribution, which would encompass individuals or bodies that: (1) are identified as representing the “directing mind and will” under the company’s constitution (which may include, for example, directors, managers, secretaries or other similar officers); and/or (2) have been delegated such powers (with full discretion) in accordance with the constitutional processes, in which case the delegate represents the “directing mind and will” of the company for the scope of the delegation. It is clear that this does not accord well with how large corporate entities run their business and how they seek legal advice. It would potentially rule out the ability of many less senior employees to seek, of their own initiative, discrete legal advice - which surely cannot be intended.

Wider interpretation

The alternative would be to apply the “special rules” of attribution to legal advice privilege in light of its content and policy, giving greater priority to the context and circumstances in which legal advice is sought or received.

The policy of legal advice privilege is to facilitate the administration of justice by encouraging and enabling a client to consult his lawyer fully and frankly and in complete confidence, safe in the knowledge that what he tells his lawyer will never be revealed to a third party without his consent. In the situation where the “client” is a corporate entity, the question to ask to determine who is the “directing mind and will” might be along the following lines: “Who, for the purpose of this particular piece of legal advice, is intended to embody the corporate entity in its position as the “client” seeking or receiving legal advice from a lawyer?”

In order for their actions to be attributed to the corporate entity, such a person would likely need to have the “authority” of the company to make the communication seeking legal advice, but that should not require any formal delegation of authority from directors (as would be required by the “primary rules”) and so would follow the Three Rivers (No 5) reading of “client” rather than restrict it further. So, as an example, a mid-ranking employee who has general authority to dismiss one of his sub-ordinates might have sufficient authority to seek privileged legal advice around the process by which a dismissal can be reached fairly.

Conclusions

Through his obiter comments, Hildyard J has not restricted the interpretation of “client” in the context of legal advice privilege to those comprising the “directing mind and will” of a corporate entity, and so the Three Rivers (No 5) definition continues to be valid.

It remains to be seen whether RBS will be appealed - which would be a welcome opportunity for a re-evaluation of the controversial decision in Three Rivers (No 5). While an appellate court would not necessarily review the “directing mind and will” aspect of the RBS judgment given its obiter nature, we might get some indication of the Court’s direction of travel in this area.

Otherwise, we detect a danger that we will see a new line of challenge in future cases which argues for Hildyard J’s suggested interpretation of “client”. If this is so, the case law on corporate attribution suggests two alternative interpretations of “directing mind and will”. One would limit the “client” to those who are identified as the “directing mind and will” in constitutional documents or have been formally delegated relevant responsibilities; the other takes a closer look at the context in which the legal advice is sought and asks on the facts who is intended to embody the corporate entity for that purpose.

One would hope that the Court would take a pragmatic approach which aligns the concept of “directing mind and will” with how large corporate entities are run and with the policy justification which lies behind legal advice privilege, providing some certainty that it would include in its scope (at the very least) in-house counsel seeking advice from external lawyers as well as managers of the business, including “middle managers” whose need for legal advice is consistent with their managerial authority and duties.