Court of Appeal confirms instructions to law firm relating to escrow monies were privileged

The Court of Appeal has upheld a High Court decision which rejected an application for disclosure of documents containing a client's instructions to its lawyers regarding the holding and transfer of escrow monies, in circumstances where the law firm had provided a confirmation to a counterparty as to the nature of its instructions:  Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd [2020] EWCA Civ 11. Our blog post on the first instance decision is here.

The decision confirms that where a client authorises a lawyer to make a statement to a third party as to the instructions he or she has received from the client, this does not, without more, give rise to a loss of confidentiality in the documents which contain or evidence the instructions. The question is whether the client has authorised the lawyer to disclose the underlying communications. This may of course be a fine line in some cases.

The Court of Appeal also held, by reference to Australian authority, that privilege will be waived if the client "puts in issue" the content of the instructions to the lawyer. This shows that privilege may be waived where a party puts the content of a privileged communication directly in issue, for example by alleging that a lawyer acted without the client's authority in agreeing a settlement. This is in addition to the more familiar situation where a party deploys its privileged material in legal proceedings such that the principle of collateral waiver (or the "cherry picking rule") comes into play. In practice, however, the two scenarios are likely to be closely linked: where a party puts its privileged communications directly in issue, it would seem inevitable that the communications will also be relied on in support of its case. Further, it is clear from previous authority that privilege will not be waived merely by putting in issue a matter to which a privileged communication is relevant, as opposed to putting in issue the content of the communication itself.

The Court of Appeal's decision also helpfully illustrates the breadth of the communications that can be protected by legal advice privilege. The privilege covers the continuum of communications between solicitor and client, so long as they are directly related to the solicitor’s performance of his professional duty as legal adviser. There is no requirement to separate out communications which contain actual instructions or advice and those which do not. That remains the case despite the subsequent decision of the Court of Appeal in CAA v Jet2.com [2020] EWCA Civ 35 (on which we reported here) which found that legal advice privilege is subject to a “dominant purpose” test, ie that the dominant purpose of the relevant communication was to give or obtain legal advice in a broad sense.

Background

The underlying facts are summarised in our blog post on the High Court's decision, linked above. Briefly, the second defendant, Ashurst, acted for a third party that was providing finance in connection with a share sale agreement. The SPA contemplated escrow arrangements being agreed in relation to the amount due.

As provided in the SPA, Ashurst issued a confirmation to the claimant bank, RBI, which stated that it had been put in funds in an amount not less than US$85 million and that it had irrevocable instructions to transfer the funds to the escrow agent, or continue to hold them, in certain circumstances.

Ultimately, however, the funds were not transferred, and RBI brought various claims including a claim against Ashurst alleging breach of a duty of care and/or misrepresentation. Ashurst accepted that, by giving the confirmation, it undertook contractual obligations to RBI; the issue was as to the scope of those obligations.

RBI sought disclosure from Ashurst of various documents including documents containing the “irrevocable instructions” referred to in the confirmation and any variation to those instructions. The application was dismissed by the High Court (Mrs Justice Moulder) on the basis that the documents were subject to legal advice privilege. RBI appealed.

Decision

The Court of Appeal dismissed the appeal. Males LJ gave the lead judgment, with which Baker and Lewison LJJ agreed.

Males LJ said it was common ground that the relevant principles for the application of legal advice privilege are as set out in Balabel v Air India [1988] 1 Ch 317 and approved by the House of Lords in Three Rivers District Council v Bank of England (No.6) [2004] UKHL 48. In order for a communication to attract legal advice privilege, it must be a confidential communication between solicitor and client and must be "for the purpose of legal advice" or (which Males LJ said is the same thing) it must occur in a "relevant legal context". If these two conditions are satisfied, the communications will be privileged even though some of the communications may not themselves be concerned either to seek or to provide legal advice. It is sufficient that they form part of a "continuum" of communications so that such advice can be sought or given when appropriate – or as Lord Carswell put it in Three Rivers (No.6):

"… all communications between a solicitor and his client relating to a transaction in which the solicitor has been instructed for the purpose of obtaining legal advice will be privileged, notwithstanding that they do not contain advice on matters of law or construction, provided that they are directly related to the performance by the solicitor of his professional duty as legal adviser of his client."

RBI's arguments on appeal were very similar to their arguments at first instance. In essence, RBI contended that the instructions to Ashurst lacked confidentiality because of the authority that had been given to Ashurst to state what the instructions were, and that in any event the instructions were not the kind of communication which attracted privilege.

The Court of Appeal agreed with the judge's conclusion on both issues.

Confidentiality

As in the court below, RBI relied heavily on the Court of Appeal decision in Conlon v Conlons [1952] 2 All ER 462. However, Males LJ agreed with Moulder J that Conlon is not authority for the proposition that legal advice privilege does not extend to a communication containing information which the client instructs the solicitor to repeat. A statement by a solicitor to a third party as to the instructions the solicitor has received from the client does not, without more, give rise to a loss of confidentiality in the documents which contain or evidence the instructions.

Males LJ agreed with the analysis set out in certain Australian authorities referred to in the judgment, which he said had treated the initial instructions as confidential and therefore privileged, but held that privilege will be waived if the client puts in issue the content of those instructions. Conlon should be understood accordingly, as in that case it was the client who had put in issue the instructions he had given to his solicitors, by pleading that if his solicitors had purported to conclude a settlement on his behalf they had done so without his authority.

In the present case, it was RBI rather than the client who sought to put in issue the content of the instructions, and there was no other basis for saying the instructions lacked confidentiality.

Purpose of legal advice / relevant legal context

Males LJ noted that, as the judge had said, Ashurst was instructed in connection with the transaction which its client was financing. That would have involved Ashurst providing legal advice to ensure that its client's interests were protected and its commercial objectives were achieved, including advising its client as to the meaning and effect of the confirmation regarding the escrow monies.

That was the context in which Ashurst would have received its instructions as to the basis on which the funds should be held and the confirmation should be provided. That was a legal context directly related to Ashurst's performance of its professional duties as the client's solicitor. The instructions formed part of a continuum of communications in a relevant legal context and were therefore privileged.

Males LJ did not accept that Ashurst was doing no more than a bank might have done in making a statement as to the basis on which it was holding money.