High Court finds privilege applies to documents from which the substance of legal advice can be inferred

In a recent decision, the High Court has considered the question of when a document will be privileged on the basis that it "evidences" a privileged communication and has taken a more liberal approach than previous case law suggested: In the matter of Edwardian Group Ltd [2017] EWHC 2805 (Ch).

The court declined to follow the decision in Financial Services Compensation Scheme Ltd v Abbey National Treasury Services plc [2007] EWHC 2868 (Ch) ("FSCS") in which the court had held that privilege does not attach to documents which merely allow advice to be inferred, rather than stating the substance of the advice. In the present case, the court considered the FSCS decision to be inconsistent with other authorities to the effect that documents will be privileged if they "give a clue to" or "betray the trend of" legal advice, and concluded that those authorities should be applied instead.

This does not mean, however, that privilege can be claimed for any document which supports an inference - however indirect - about the substance of legal advice. The contents of the document must provide a "definite and reasonable foundation" for the suggested inference. It is not enough that the document would prompt speculation about the advice.

Background

The issue arose in the context of unfair prejudice proceedings under section 994 of the Companies Act 2006. In their defence to the petition, the respondents allege that the petitioners should be denied relief due to their delay in bringing the proceedings (among other reasons). In response, the petitioners rely on various matters to justify the delay, including their efforts to obtain litigation funding over the relevant period.

The petitioners disclosed various communications with potential funders (the "Litigation Funding Documents"), but in heavily redacted form. The petitioners asserted that the redacted parts of the documents were subject to legal advice privilege on the basis that they "refer to, reproduce, summarise, embody or otherwise reveal directly or indirectly the nature, content [or] effect of privileged communications".

The respondents contended that the petitioners' claim for privilege was too broad, as redactions had been made to the Litigation Funding Documents on the basis that the legal advice given to the petitioners could be "inferred" from them, which was not permitted by the decision in FSCS referred to above. They applied for an order permitting them to inspect the Litigation Funding Documents without the redactions in question.

Decision

The court (Mr Justice Morgan) refused to make such an order.

His starting point was the well-established principle that privilege extends to material which "evidences" the substance of communications which are themselves subject to legal advice privilege, as stated for example in Three Rivers No 5 [2003] QB 1556. That case did not, however, consider what was meant by "evidencing" the substance of privileged communications.

Morgan J said he considered that there were "considerable arguments in favour of" the approach in FSCS, ie that privilege does not attach to documents which merely allow advice to be inferred, rather than stating the substance of the advice. However, he noted that the court in FSCS had not been referred to Lyell v Kennedy (No 3) (1884) 27 Ch D 1, in which the Court of Appeal found that a selection of documents was privileged on the basis that it would give the opponent "a clue to the advice given by the solicitor" - or, as the principle was summarised in the later decision of Ventouris v Mountain [1991] 1 WLR 607, "betrays the trend of the advice".

The judge noted that, since FSCS, there have been a number of cases where it was assumed the relevant test was the one in Lyell or in Ventouris v Mountain, including the RBS Rights Issue Litigation [2017] 1 WLR 1999 (considered here) in which the court referred to these authorities in stating the principle that a lawyer's working papers will be privileged if (and only if) they "betray or at least give a clue as to the trend of advice being given to the client by its lawyer".

The judge concluded that he should apply the Lyell test here. However, he adopted the distinction drawn in an Australian case (AWB v Terence Cole [2006] FCA 571) between a situation where there is a "definite and reasonable foundation in the contents of the document for the suggested inference" - in which case privilege would apply - and one where there is merely "something which would allow one to wonder or speculate" as to whether legal advice had been obtained and as to its substance - in which privilege would not apply.

On the facts, although Morgan J had doubts as to whether the petitioners had correctly applied this test, he declined to go behind the evidence of the petitioners' solicitor.