Comfort and surprise: two English High Court decisions of note concerning legal professional privilege

Comfort and surprise: two English High Court decisions of note concerning legal professional privilege

Blog WilmerHale W.I.R.E. UK

Two English High Court decisions have addressed separate but important points of principle relevant to the availability and application of English legal professional privilege (“privilege”) which are particularly relevant for parties engaged in conducting internal investigations.

In PJSC Tatneft v Bogolyubov and others [2020] EWHC 2437 (Comm) (“Tatneft”), the Commercial Court held that communications with Russian in-house lawyers are privileged under English law, regardless of the applicable professional standards or regulation under Russian law. The ruling provides comfort to those engaged in multijurisdictional investigations that communications with foreign in-house lawyers will benefit from English legal advice privilege, providing only that the lawyers are acting in the capacity or function of a lawyer.

A v B and the FRC [2020] EWHC 1491 (Ch) (“A v B”) considered the proposed disclosure of documents by an auditor to its regulator, the Financial Reporting Council (“FRC”), in response to a statutory document request issued by the FRC, over which documents the audit client claimed privilege. The High Court held that it is for the auditor, and not the audit client, to determine whether documents are in fact privileged and can therefore be withheld on that basis from production otherwise required to the FRC. On its face, A v B is a surprising decision that is of real significance for parties engaged in internal investigations where privileged material will typically be communicated between the audit client (i.e. the company which has commissioned the investigation) and its auditors on a limited waiver basis for the purpose of the audit. The ruling will require close and careful communication between the auditors and their clients in order to avoid potentially time consuming and expensive disputes arising as to the privilege status of documents where the underlying privilege belongs to the audit client.

Tatneft

The dispute in Tatneft arose when PJSC Tatneft (a Russian oil company) asserted legal advice privilege over communications between its employees and officers and members of its in-house legal department in order to withhold those documents in English legal proceedings. The second defendant, Mr Igor Komoloisky, challenged the privilege claim on the basis that Russian in-house lawyers are not members of the Russian Bar, not considered “Advocates” and therefore the concept of “advocate’s secrecy” (broadly the Russian equivalent to legal professional privilege) does not apply to them.

Mrs Justice Moulder, referring to Lord Neuberger’s observation in the UK Supreme Court case of Prudential1 that “…the extension of LAP [legal advice privilege] which the court has approved to all foreign lawyers, without (it would seem) regard to their particular national standards or rules with regard to privilegerejected the defendants’ submissions in Tatneft that privilege only applies to foreign lawyers who are “appropriately qualified”.

The judge made clear that “it is the “function” of the relationship and not the “status” of the lawyer which is relevant in the case of foreign legal advisers …”3, concluding that legal advice privilege extends to communications with foreign lawyers, regardless of whether they are in-house and that the courts “will not investigate whether a foreign lawyer is regulated or registered.”4 The only requirement is that they should be acting in the capacity or function of a lawyer, in connection with the provision of legal advice.

A v B

The dispute in A v B arose in the context of an investigation conducted by the FRC into the financial statements of a retailer, A (the audit client). The subjects of the investigation are A’s former auditor, B, and an audit partner of B. In the course of the FRC’s investigation, it issued notices to the auditor (B) requiring the provision of certain documents in exercising its statutory powers under SATCAR.5 Non-compliance with a statutory notice is an offence, however, under the terms of SATCAR, there is no requirement to provide privileged material.

Following receipt of the statutory notice, the auditor (B) proposed to disclose six documents over which the audit client (A) claimed privilege. The documents were in the auditor’s possession as the audit client had provided the documents to the auditor during the course of the audit on the basis of a limited waiver of privilege. The question for the court was which of the audit client or the auditor should determine whether the documents were in fact privileged and therefore should be withheld in the context of a statutory request for documents by the FRC.

The audit client (A) argued variously that: (i) privilege is a substantive right and belongs exclusively to the audit client; (ii) only the audit client should decide whether to assert or waive privilege; (iii) only the audit client possesses the necessary information to determine privilege; (iv) the auditor has no interest in the audit client’s privilege rights and no incentive to protect them and indeed conversely has an incentive to provide as much material as possible to the FRC as its regulator; and (v) if the FRC disputes the privilege claim, that dispute is properly between the audit client and the FRC, and the auditor should take a “purely ministerial role” and simply relay the audit client’s claims to privilege to the FRC.

Mr Justice Trower was not persuaded by the audit client’s arguments. He held that the auditor’s function is not “purely ministerial” and that it is for the auditor to determine whether the document is in fact privileged as “it is the person by whom the duty to disclose on service of a statutory notice is imposed”.6 The auditor’s “obligation [under SATCAR] is to comply [with the FRC’s statutory request] unless the document is in fact privileged, not unless B [the auditor] believes that it is privileged or A [the audit client] asserts that it is.7

Mr Justice Trower considered that the audit client’s rights were capable of being protected by bringing proceedings, including injunctive relief, against the auditor: “If it [the auditor] makes the wrong decision, it will be liable to A [the audit client] if and in so far as it has failed to maintain a privilege in respect of which it was under a duty to maintain.”8 He concluded that there are “real advantages” in leaving the issue of disagreement about disclosure to be resolved in proceedings between the auditor and the audit client, not least because the privilege determination can be made in proceedings where both parties have sight of the disputed documents, unlike the FRC.

Conclusion

Both decisions should help to inform the day to day conduct of internal investigations, specifically as that relates to the handling of communications and material that are considered to be legally privileged:

  • Companies and their advisers engaged in investigations that have a multijurisdictional aspect and involve communications with foreign lawyers, whether in-house or otherwise, will take comfort from the reassurance that English legal advice privilege will protect their communications with those foreign lawyers, providing they are acting in the capacity or function of a lawyer.
  • Conversely, companies and their advisers would be well-advised to ensure that all privilege claims over communications that are shared with the company’s auditors on a limited wavier basis for the purposes of the audit are properly founded and robustly asserted and that such communications are only shared on an expressly agreed written basis that requires the auditor to promptly notify its audit client of the service of any statutory notices.It will also be interesting to note whether the decision is interpreted as having an analogous application to other non-audit regulatory regimes or whether it will be confined in its application to FRC audit investigations.

1 R (on the application of Prudential plc and another) v Special Commissioner of Income Tax [2013] UKSC 1.

2 Ibid, at para. 45.

3 Tatneft, at para. 36.

4 Tatneft, at para. 53.

5 The Statutory Auditors and Third Country Auditors Regulations 2016.

6 A v B, at para. 72.

7 Ibid, at para. 70.

8 Ibid. at para. 72.