Myth-busting: When is legal privilege not legal privilege?

Managing legal risks and exposures is paramount in every organisation and no more so than in those that are subject to regulatory oversight.

The myth: All advice and communications relating to legal and regulatory matters is subject to legal privilege.

The reality: There are strict rules as to when privilege can apply, not least that legal advice privilege has to involve a lawyer and a client, and privilege is easily lost.

Privilege is the legal device by which people and legal entities can obtain confidential legal advice that is protected from disclosure requirements to courts, the regulator, or another party. It is often described as a cloak of privilege, and it exists to enable an open and frank dialogue between lawyer and client without fear that this dialogue may later enter the public domain. Whether a company is simply taking advice, undertaking an internal investigation, or facing litigation or regulatory action, ensuring documents are privileged is vital to managing the known and unknown legal risks.

In this article, Ogier Head of Legal Regulatory Rachel Cropper-Mawer and partner Nick Williams discuss the difference between legal advice privilege and litigation privilege and the potential pitfalls for clients. Please note the following rules on privilege are generally applicable to Jersey, Guernsey, Ireland, BVI and Cayman. The rules are slightly different in Luxembourg where legal advice privilege is applied more broadly.

Legal advice privilege

Legal advice privilege relates to communications between a lawyer and a client where the dominant purpose is to obtain legal advice, whether the issue is contentious or non-contentious. If the client is not an individual, for example a company or family, then those involved must clearly define the group who will receive the legal advice (for example, the in house counsel of a company and specific directors dealing with that matter). If those communications are shared more widely, even within a client company or a family, then privilege is lost, and the documents are no longer protected.

Common mistakes to avoid:

• adding the title "Subject to legal advice privilege" or "May be subject to legal advice privilege". Doing this does not automatically make a document privileged (equally, not including these words does not mean the document is not privileged – it is a qualitative assessment in each case)
• there are no circumstances where it applies between two or more non-lawyers:
  • it does not apply to communications between an employee and the Money Laundering Reporting Officer (MLRO) and even if the MLRO is a lawyer it does not automatically apply
  • it does not apply to communications between a company or person and any other non-legal advisor including a consultant, investigator, or expert – even if it relates to a matter on which legal advice has also been provided
• sharing advice with any third parties may waive privilege
• it does not apply to pure commercial advice, administrative or general correspondence even if that correspondence is sent by a lawyer
• pre-existing non-privileged documents do not become privileged simply because they are sent to a lawyer

Litigation privilege

Litigation privilege is different to legal advice privilege. It applies only when litigation or a regulatory action is pending, reasonably contemplated or exists. It applies to communications between a person or entity and any advisers for which the main purpose is to obtain evidence or information to help deal with a legal dispute. It is, therefore, much broader than legal advice privilege but only applies in a smaller sub-set of cases.

To qualify as "pending or contemplated", there must be a real likelihood that there will be legal proceedings, not simply that there might be or it is possible there will be legal proceedings. Investigations, where an enforcement body has not become involved, or  may or may not become involved, do not qualify -  it is only if it is truly likely that they will become involved that litigation is in contemplation. Communications sent to and from a non-lawyer at a time when there is uncertainty in this respect will not attract legal privilege.

Circumstances where litigation privilege does not apply or is lost, include:

• when a document is prepared by a non-lawyer before litigation is pending or likely to happen
• when a document relating to a dispute is prepared for a number of purposes - such as a remediation plan or board update , or - to discuss reserves and resources and the litigation is not the dominant purpose
• internal documents prepared with the commercial purpose of a settlement where parties are not obtaining legal information or advice
• internal communications prepared with the dominant purpose of discussing a commercial settlement, since purely commercial discussions - where the parties are not obtaining information or advice in connection with the conduct of the litigation – are not privileged
• even if there is a distinct possibility that sooner or later someone might make a claim, or there is  a general apprehension of future litigation, litigation privilege may not apply depending on the circumstances

Special considerations for internal investigations include:

• all of the rules apply, as above
• legal advice from a lawyer will always be privileged
• if a document created in the course of an investigation by lawyers includes legal advice and is created with the dominant purpose of obtaining legal advice then it should be privileged
• if there have been communication from a supervisory body this will likely not be enough to imply that a regulatory action is in contemplation
• if there is communication from an enforcement body this may, in some circumstances, mean that litigation privilege will apply

You will need to pay particular attention to:

• identifying the client in relation to any given instructions
• understanding what communications attract privilege, particularly when your role and any given communications can mix both legal and non-legal elements
• when privilege can be lost or in fact never existed
• how to store privileged documents to reduce the risk of disclosure in error

How Ogier can help

Ogier provides specialist regulatory legal advice, using hindsight and foresight to deliver insight on your business needs today and tomorrow.

The regulatory environment is increasingly complex and challenging, often involving multiple regulatory bodies across multiple jurisdictions. We network extensively with the best firms and consultants to ensure our clients get the right advice in diverse and cross-border situations.

We ensure clients comply with their regulatory obligations and are briefed on future regulatory change so they are ready to respond. We advise regulated businesses on contentious regulatory matters including investigations and enforcement actions as well as registration and licensing. We also assist in setting up and updating the right regulatory or compliance framework. Our pragmatic experts balance astute technical compliance with realistic, practical implementation advice and deal with issues as they arise.

For more information, contact the authors of this article.

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice