This is the decision which, together with the December 2016 RBS Rights Issue Litigation decision, has made it crystal clear that in a corporate context legal advice privilege will only protect communications between its lawyers and those of its employees who are tasked with seeking legal advice from them on their employer’s behalf. That means that - absent the availability of litigation privilege - when the lawyers communicate with any other employee, or any third party, about the subject matter on which they are asked to advise, then those communications (together with any intra-employee communications) fall outside the scope of the privilege.
The impact of these decision is mostly felt by disputes lawyers, especially those conducting internal investigations. But it is easy to overlook that the issues to which Three Rivers (No 5) gives rise also occur in a non-contentious context, for example in relation to advice given in relation to a corporate takeover or sale and purchase transaction.
In this regard, I have been interested in a decision of the Federal Court of Australia in Asahi Holdings (Australia) Pty Ltd v Pacific Equity Partners Pty Limited (No 4)  FCA 796 (01 August 2014). This case not only provides a really interesting insight into the contrasting approach to the reach of legal advice privilege in Australia (and thus illustrates my view that English law is now out on a limb with most of the rest of the common law world in the approach taken to third party communications in this respect), but also shows how care must be taken when dealing with third party advisers in a non-contentious transaction.
Asahi was concerned with a share sale agreement, pursuant to which Asahi Group Holdings acquired shares from several respondents. Asahi engaged a number of third party advisers (Rothschilds, Nomura and Deloitte) to assist it with the transaction, including to provide financial advisory services, to conduct commercial due diligence and to help it evaluate the proposed acquisition. Each third party engaged had signed up to a confidentiality clause in their terms of engagement.
Asahi filed proceedings relating to the transaction, claiming that Pacific Equity Partners (PEPP) made misrepresentations to it about the financial position of the acquired company. PEPP applied for disclosure of documents from the third party advisers and questions arose as to whether any of these were covered by legal advice privilege.
Asahi submitted that the relevant communications were confidential communications made for the (dominant) purpose of enabling Asahi to obtain legal advice from their lawyers, or the communications contained or summarised legal advice, and that each third party adviser making or otherwise a party to the communications was required to preserve the confidentiality of those privileged communications. Australian case-law has developed such that communications with third party advisers in relation to a non-contentious matter can be protected by legal advice privilege in certain circumstances. Beach J. summarised the relevant case-law as follows1:
“ … a communication made by a third party adviser to a client’s lawyer if made for the requisite dominant purpose of the client obtaining legal advice from the lawyer will be privileged. … a communication made by a third party adviser to a client if made for the requisite dominant purpose of the client then obtaining legal advice will be privileged.” [Note that Australian courts clearly apply a dominant purpose test to legal advice privilege, in contrast to English courts.]
This approach does not represent English law: indeed it is at the other end of the spectrum compared to the current English approach. An example of where this form of legal advice comes into play arose in the Asahi case in respect of an internal Rothschild’s document consisting of an email chain that comprised (a) an email from Freehills (Asahi’s Australian legal advisers) to Asahi, Rothschild, Nomura and Bell Gully (a New Zealand law firm also advising Asahi) attaching documents which had been the subject of legal advice or input from Freehills; (b) an email from Nomura to Freehills, Asahi, Rothschild and Bell Gully which referred to that document; and (c) an email from Rothschild to Nomura which was copied to Freehills and referred implicitly to the document and its contents.
Having reviewed this document, the Judge (not without some hesitation), found that the dominant purpose test was satisfied:
“The first email was prepared by Freehills for the dominant purpose of giving legal advice to Asahi . The second email was prepared by Nomura also for that purpose or continuing the purpose of Freehills. The third email was prepared by Rothschild also for that purpose or continuing Freehills’ purpose. I am fortified by the following matters. First, the email chain is initiated by Freehills. Second, Freehills is a party to each email in the chain. Third, the email chain as to its topic deals with a document’s contents that have been the subject of specific legal advice given by Freehills. Fourth, the first and second emails specifically refer to advice given by Freehills concerning the disposition of the document.”
It is difficult to see how, on the present state of English authority, the same decision would have been reached by an English court. While there would have been no waiver of privilege by virtue of sharing privileged materials with non-legal advisers in such circumstances (see Colman J. in Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow  1 All ER 976), at best, there might have been a case for redacting from any of the third parties’ emails references to the legal advice given by Freehills (see for example the Mann J decision in USP Strategies Plc, Unicorn Strategies LLC v London General Holdings Limited, AON Warranty Group LimitedAON Warranty Services Limited  EWHC 373 (Ch)) But otherwise, input in such circumstances, even into the legal advice being given by the lawyers, would fall outside the scope of legal advice privilege: in which case any relevant communications would potentially be discloseable, since English law does not recognise the ability of non-lawyers to make protected communications in the absence of a litigious context. The Asahi decision therefore represents a position that appears extreme to English legal eyes.
But even in Australia, there are limits to the reach of legal advice privilege when it comes to third party communications in a transactional context. Those limits were also reached in Asahi and these helpfully illustrate my point about the need for care when engaging with non-legal professionals in the course of the deal. As Beach J further said:
“ … where a third party such as an accountant, broker, merchant banker, financial adviser, due diligence specialist and others of a non-legal genus perform work for a client in a non-litigation setting, care needs to be taken with analysing the precise purpose for each communication. Take a substantial acquisition or merger. A client may engage and seek advice from a number of non-legal advisers as well as consulting lawyers. Legal and non-legal advice might be sought on the structure, bid vehicle, terms and conditions of any offer or agreement, finance of the bid vehicle, due diligence of the assets and liabilities of the target, assessment of the financial metrics of the target pre and post-acquisition … including any underlying projections, and so forth. In short, legal and non-legal advice might be sought on the same topic so that the topic in all its dimensions is fully analysed by and for the client. The various advices given by the non-legal advisers will rarely be capable of attracting privilege for the reason that they will almost invariably have the character of discrete advices to the principal as such, with each advice, along with the lawyer’s advice, having a distinctive function and purpose in the principal’s decision making. Even where all such advices are interrelated, that is, they provide a collective basis for an informed decision by the client, this does not deny the force of the … point that non-legal advices will rarely attract privilege. … if non-legal advices are provided to a client who then chooses to provide them to its lawyers, that does not clothe the original non-legal advices with privilege. They ordinarily will have been prepared for a non-legal purpose.”
This has the consequence that if a document drafted by legal advisers is given to a third party adviser for them to provide commercial (non-legal) advice on, that is a non-privileged purpose, even if the comments are ultimately fed back to the legal adviser. Furthermore, care has to be taken where lawyers and non-lawyers have all provided input into a draft document: unless you can point to “lawyer only” mark ups, it is unlikely you can claim that the whole draft is privileged. As Beach J. said:
“I do not accept the argument that where you have an important transactional document where multiple non-legal advisers are providing their own commercial (non-legal) advice, together with the legal advisers, who are the ultimate gate keepers, that the non-legal advisers’ internal considerations and their separate advice, ipso facto is for a dominant privileged purpose. And that is so even if the non-legal advice is ultimately passed back to the lawyers, directly or through the client. Each specific communication needs to be looked at with considerable care. Prima facie, the internal non-legal adviser considerations would not be for a dominant privileged purpose. It was also said that if a non-legal adviser was provided with a draft document that may have been considered by Freehills, then it contained embedded within it Freehills’ advice. Therefore it was said to be separately protected as a document from which the nature of legal advice might be inferred. … The draft is a composite product of the inputs of the client and all non-legal and legal input. It is not reasonable to say that the draft and subsequent drafts remain privileged simply because at some point there was legal input or at the end point the lawyers signed off. There are further conceptual problems with this idea that in a sequence of drafts of a particular document, if a lawyer has input into a draft, then all later drafts are privileged. What happens if the first draft was created by the client, say a letter of offer or heads of agreement? What happens if the first draft is created by a non-lawyer third party adviser? What happens if for later drafts there is 90% input from non-lawyer third party advisers and 10% input from the lawyers? What happens if the lawyer adds or changes no content to the non-lawyers’ draft, but advises that it is acceptable? The advice is privileged, but the draft? To accept the breadth of the applicants’ submissions would be to accept that privilege applies to these drafts.”
What does this all tell us? First, the Australian courts have adopted a broader approach to what communications can be privileged within the scope of legal advice privilege, an approach that really contrasts with where we are now with Three Rivers (No. 5) as it has been interpreted in ENRC. Secondly, the legal profession in England and Wales really needs an appellate court to look at the scope of this head of the privilege and to examine why we are now so out of line with common law in other senior jurisdictions. As of writing (08 August 2017), it is still the case that permission to appeal ENRC has not been given. So the wait goes on for more senior authority on the true scope of legal advice privilege in England and Wales.
1 Pratt Holdings Pty Ltd v Commissioner of Taxation  FCAFC122
and Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 199 CLR 501 (Propend)
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