CONFIDENTIALITY has always been at the heart of the relationship between a lawyer and his client. But two recent rulings in cases spawned by the long-running dispute between the BCCI creditors and the Bank of England are raising concerns over whether the scope of legal privilege is being significantly eroded.

Philippa Bennett, a litigation partner with the international law firm DLA, says that one of the decisions could so severely restrict the “free flow of information and correspondence” between lawyer and client that clients would be inhibited from “telling the whole truth” to their lawyers.

Legal advice privilege was first acknowledged in a 1833 case by Lord Brougham, then Lord Chancellor. He said that to force a client to disclose what he has written or spoken to his lawyers “seems inconsistent with the possibility of an ignorant man safely resorting to professional advice”. He then went on to acknowledge that, if such a protection did not exist, “a man would not venture to consult any skilful person or would only dare to tell his counsellor half his case ”.

Now, in a recent series of pre-trial rulings in the case of Three Rivers District Council and Others v Governor and Company of the Bank of England, Mr Justice Tomlinson and the Court of Appeal have taken a fresh look at when legal privilege attaches to correspondence between a client and his legal advisers. The decision on a further appeal as to what constitutes “legal advice” is due this month.

This satellite litigation arose from a request for internal documents produced by the Bank of England for the Bingham inquiry, which was appointed by the Government after the collapse of BCCI in 1991 to look into its supervision.

When the inquiry began, the Bank set up an internal unit — the Bingham inquiry unit (BIU) — to deal with all the communications between it and the inquiry. These were the subject of legal advice from the Bank of England’s lawyers; documents were drafted internally by the BIU and other Bank employees before being submitted to the Bank’s legal advisers; some documentation was drafted by Bank employees in order to provide background information to the legal advisers.

When disclosure of the BIU documentation was requested as part of the malfeasance claim brought against the Bank by BCCI creditors, the Bank refused to disclose them, claiming “legal advice” privilege. The BCCI creditors sought a court order that they be disclosed.

Mr Justice Tomlinson held that the purpose of legal advice privilege was to enable a party to communicate freely with his solicitor, and that an internal confidential document that was produced or brought into existence with the dominant purpose that it or its contents be used to obtain legal advice was privileged and did not have to be produced. He concluded that the “background” documents prepared by the BIU came within the ambit of legal advice privilege.

The Court of Appeal disagreed. It applied a much narrower interpretation of legal advice privilege. It said that legal advice privilege could be claimed only for documents that passed between the client (which it said was the BIU and not the Bank of England generally) and its legal advisers or documents that evidenced the contents of such communications. The court said that the need for a client to be able to “make a clean breast” to his legal adviser was paramount only when litigation either existed or was contemplated, which it was not in this case — the Bingham inquiry was not litigation for these purposes. The Court of Appeal ruled that the Bank was not entitled to claim privilege in relation to any of the documents in dispute.

It also applied a limited definition of who constitutes a “client”, which now appears to be confined to those within a corporate entity who have the specific task of seeking and obtaining the advice — others will be regarded as outside third parties. Careful consideration will need to be given as to who is the client in any given circumstance: it may be an individual or the whole board or an in-house legal department.

The case came back before Mr Justice Tomlinson last November. He now had to decide what was meant by “legal advice”. The accepted view was that legal advice was not confined to telling the client the law, but “must include advice as to what may prudently and sensible be done in the relevant legal context”. The judge held that legal advice privilege applied only to advice given in connection with “legal rights and obligations”, thus significantly narrowing the accepted view. This decisionis the subject of an appeal.

If the Court of Appeal does not overturn Mr Justice Tomlinson’s decision, then litigation privilege will still protect documents specifically brought into existence when litigation is “contemplated or pending”. But only in a very limited set of circumstances will other documents produced by a client be protected against disclosure.

Meanwhile, Howard Beal, a solicitor in Richard Butler’s commercial disputes group, cautions any employer thinking of commissioning a document from an employee other than where litigation is pending or being contemplated. Employers must consider carefully the potential impact of the document, he says, “in any subsequent litigation in which it would be discloseable”.

Collectively, these decisions have severely restricted the scope of legal advice privilege. As Simon James, a litigation partner with Clifford Chance who specialises in commercial dispute resolution, points out, they “destroy the myth that communications between lawyers and clients enjoy magical protection from disclosure”.

The author is an in-house solicitor for The Times and The Sunday Times

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