The threat of restricted legal advice privilege still looms

All disputes lawyers will remember the reaction to the Court of Appeal decision in Three Rivers District Council v Bank of England [2003] EWCA Civ 474 ('Three Rivers No 5'). It held, without reference to any evidence such as the retainer letter, that for the purpose of assessing legal advice privilege the client was not the Bank of England, but a group of three individuals known as the 'Bingham Inquiry Unit' who were responsible for co-ordinating communications with the external lawyers.

Everyone else at the bank was a third party to the lawyer-client relationship, so legal advice privilege did not apply. On this narrow view of the 'client', even communications between the lawyers and the governor of the bank (who had appointed the Bingham Inquiry Unit) were not privileged.

Following the Court of Appeal's decision, there was much debate about whether, and to what extent, client engagements should be agreed differently to avoid the risk that the court took the view that a corporate client was not to be regarded as the 'client' when obtaining legal advice. Should one define at the outset which individuals within an organisation constitute the 'client'? How widely should the net be cast? What would happen if individuals outside the defined group then became involved?

Over the intervening years, however, the issue appeared to recede. The feared flood of decisions restricting the 'client' to some limited group of individual employees did not materialise. I am not aware of any subsequent English case in which the Court of Appeal's judgment has been applied on this point. Further, Three Rivers No 5 was given a decidedly chilly reception by the House of Lords in its later decision on a different point in Three Rivers No 6 ([2004] UKHL 48).

Although the lords declined to rule on the issue, as it did not arise for consideration in the appeal, Lord Carswell said that he was 'not to be taken to have approved of the decision' and reserved his position on its correctness. Indeed, it was specifically not followed by the Australian courts, which went the other way and broadened the scope of legal advice privilege to include third-party communications, so long as they were prepared for the purpose of obtaining legal advice (Pratt Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 122). It began to appear that the Court of Appeal's restrictive view of the 'client' in Three Rivers No 5 would itself be restricted to its own facts and not followed.

Difficult distinction

For that reason the recent decision of the Hong Kong Court of First Instance in CITIC Pacific Ltd v Secretary for Justice [2011] HKEC 1657 has come as a nasty reminder of the problems Three Rivers No 5 presented.

The judge applied Three Rivers No 5 to restrict the 'client' to the group legal department (comprising two in-house lawyers) and the board of directors. This was on the basis that the group legal department 'comprised the persons, or was the entity, delegated, either expressly or by implication, to instruct/communicate with the plaintiff's legal advisers'. Just as in Three Rivers, other employees of CITIC were merely 'third parties', so that their communications with the lawyers were not privileged, even when providing information to the lawyers at the lawyers' request. At least in this case members of the board of directors were included in the 'client', on the basis that the group legal department acted under the direction of the board.

The judgment appears to suggest that communications between in-house lawyers and other employees for the purpose of instructing external lawyers are not privileged. But in-house lawyers give privileged legal advice to their internal clients. The practical difficulties of distinguishing between the two are obvious.

The decision in CITIC has been appealed, and judgment on the appeal is awaited. Of course, none of this is binding on the English courts, but the Hong Kong court's decision to go down this route is a reminder that Three Rivers No 5 has not gone away, and will not have done until some unfortunate party finds itself appealing a similar decision in England to the Supreme Court.