Post by congregatio on Oct 30, 2019 22:44:52 GMT 4
The Court of Appeal's recent judgment in Lee Victor Addlesee and others v Dentons Europe LLP1 , addressing the "novel" question of whether or not documents continue to be protected by legal advice privilege, notwithstanding the fact that the company entitled to assert that privilege has since been dissolved, will be of particular interest to entities with complex group structures or who become involved in disputes involving dissolved entities whether or not related to insolvency.
The Dispute
The underlying dispute concerned a large group of investors who had invested into a collapsed gold dust investment scheme. The scheme, which had been marketed by a Cypriot company, Anabus Holdings Ltd ("Anabus"), closed in 2010, with many of the investors remaining unpaid. Anabus was dissolved in 2016 pursuant to the provisions of Cypriot company law, which provided that all the dissolved company's property would be deemed bona vacantia. Anabus had been advised, at the relevant time, by an English law firm called Salans LLP ("Salans") (which since became Dentons Europe LLP ("Dentons")). The investors issued proceedings against Dentons in May 2016, claiming that the investment scheme was fraudulent, and that the defendant had recklessly and/or negligently enabled the scheme and induced those investors to enter into it, by affording the scheme respectability by endorsing it as Anabus' legal advisor.
During the litigation, the claimant investors applied for disclosure of various documents that had come into existence on Salans' files and had passed between Salans and its then client, Anabus (now dissolved). The parties agreed that the documents would have attracted legal advice privilege, unless it could be shown that an exception to privilege applied or that privilege had been waived. The question was whether the privilege survived Anabus' dissolution.
One of the main points of argument was whether or not the legal privilege in the documents – and consequently the right to waive it – had passed to the Crown. As part of the investors' application, both parties had written to the Bona Vacantia Division of the UK Government Legal Service. The Crown's position, in response, was that the assets in the UK of a foreign dissolved company vested in the Crown as bona vacantia at common law; in the present case those assets included the client files of Anabus' solicitors. Although the Crown disclaimed any interest in those client files, it expressly neither asserted nor waived privilege therein, and did not consider the effect of its disclaimer to be to waive privilege. Conversely, the investors argued that legal advice privilege was not something which the common law would regard as bona vacantia, and the Crown had acquired no right either to assert or waive privilege over the documents.
Ruling on the investors' application, Master Clarke refused disclosure of the material sought, holding that the documents retained their privilege on the basis that it was theoretically still possible (and would remain possible until 2036) for Anabus to be restored to the relevant company register, at which point the company would be able to reassert its privilege over the documents.
Master Clarke referred to the decision of the Upper Tribunal in Garvin Trustees Ltd v The Pension Regulator2, by which Master Clarke was bound, and which had held that the right to assert legal professional privilege ceased once the client company had been dissolved. Master Clarke distinguished the present case from Garvin, however, on the basis that the time limit for restoring the company to the register in Garvin had expired (in other words, there was not even a theoretical possibility of the company being able to reassert the privilege), which was not the case here.
On appeal, the claimant investors argued that the right to legal advice privilege was solely for the benefit of an identifiable party (the client; in this case, Anabus) and that party's successors in title, and no third party could assert that right in Anabus' stead. Since Anabus had been dissolved, there was no legal person entitled to assert the right to privilege in the material, and the right ceased to exist (an "ownerless right makes no juridical sense"). With regard to Master Clarke's reliance on the theoretical possibility that Anabus could be restored to the register, the investors asserted that there was in fact no real prospect of that happening. Even if there were, they argued, the "mere prospect" of restoration did not require either the company's former lawyers, or the court, to maintain privilege "on the off chance that such a restoration might one day take place". The court should, instead, deal with the facts as they are at the time of the application for disclosure. Dentons, in turn, submitted that once privilege had attached to a communication, that privilege would only cease if it was waived by the client or some other party entitled to waive it.
Court of Appeal's decision
Having reviewed the relevant authorities as to the rationale for legal advice privilege and referring, in particular, to Lord Taylor of Gosforth's conclusion that the principle running through those authorities "is that a man must be able to consult his lawyer in confidence, since otherwise he would hold back half the truth"; and that a client "must be sure that what he tells his lawyer in confidence will never be revealed without his consent" (emphasis added)3, the Court of Appeal unanimously dismissed the investors' appeal, and refused to order the disclosure of the privileged documents.
However, the decision was based on different grounds from those relied upon by Master Clarke. Lord Justice Lewison (delivering the Court's judgment) stated that:
"...legal advice privilege, once established, remains in existence unless and until it is waived. It is established as a result of the purposes for which, and the circumstances in which, the communication was made. Whether there is no one who can now waive it; or whether the Crown could have waived it but has not done so; does not matter".
Consequently, the decision in Garvin was overruled by the Court of Appeal on the basis that it did not matter if the entity entitled to rely on legal advice privilege was dissolved, nor did it matter if it was still possible for the dissolved entity to be restored to the register. Once it had been created, the privilege attached to the document or communication in question. The only relevant factor was whether or not the privilege had been waived (or is overridden by statute). On the disputed issue of whether the Crown had acquired the privilege and, if so, had waived that privilege by disclaiming its interest in the assets, the Court did not consider this to impact its decision. If the right to waive privilege never passed to the Crown, there was no one who could waive it; if it did pass to the Crown, the Crown had made clear that it did not mean by its disclaimer to waive the privilege.
Comment
The Court of Appeal's decision in Addlesee underlines the importance and strength of legal advice privilege under English law and restates its enduring nature. Once created, the privilege remains intact unless and until it is waived. To make an exception to the general principle of "once privileged, always privileged" in the case of dissolved companies would "undermine the policy of certainty that underpins legal advice privilege".
The judgment also provides helpful clarification to parties which may inadvertently have possession or control over a third party's privileged documents (possibly as a result of a merger or insolvency). Where such parties receive disclosure requests, either from a regulator as part of an investigation or in relation to ongoing litigation, caution should be exercised before agreeing to give disclosure and, where appropriate, legal advice should be taken.
Finally, many businesses will need to consider issues such as privilege holistically and in an international context and there is a great deal of divergence between different systems of law in this regard. By way of example, it is worth noting that this decision reflects one of many areas in which privilege rules under English law do not align with the position in the US, where the majority of the case law suggests that a corporate's legal advice privilege does not survive its dissolution – on the basis that post-dissolution, there is no party that can actually assert privilege.
Footnotes
1 [2019] EWCA Civ 1600
2 [2014] 11 WLUK 469
3 R v Derby Magistrates' Court ex p B [1996] 1 AC 487
The Dispute
The underlying dispute concerned a large group of investors who had invested into a collapsed gold dust investment scheme. The scheme, which had been marketed by a Cypriot company, Anabus Holdings Ltd ("Anabus"), closed in 2010, with many of the investors remaining unpaid. Anabus was dissolved in 2016 pursuant to the provisions of Cypriot company law, which provided that all the dissolved company's property would be deemed bona vacantia. Anabus had been advised, at the relevant time, by an English law firm called Salans LLP ("Salans") (which since became Dentons Europe LLP ("Dentons")). The investors issued proceedings against Dentons in May 2016, claiming that the investment scheme was fraudulent, and that the defendant had recklessly and/or negligently enabled the scheme and induced those investors to enter into it, by affording the scheme respectability by endorsing it as Anabus' legal advisor.
During the litigation, the claimant investors applied for disclosure of various documents that had come into existence on Salans' files and had passed between Salans and its then client, Anabus (now dissolved). The parties agreed that the documents would have attracted legal advice privilege, unless it could be shown that an exception to privilege applied or that privilege had been waived. The question was whether the privilege survived Anabus' dissolution.
One of the main points of argument was whether or not the legal privilege in the documents – and consequently the right to waive it – had passed to the Crown. As part of the investors' application, both parties had written to the Bona Vacantia Division of the UK Government Legal Service. The Crown's position, in response, was that the assets in the UK of a foreign dissolved company vested in the Crown as bona vacantia at common law; in the present case those assets included the client files of Anabus' solicitors. Although the Crown disclaimed any interest in those client files, it expressly neither asserted nor waived privilege therein, and did not consider the effect of its disclaimer to be to waive privilege. Conversely, the investors argued that legal advice privilege was not something which the common law would regard as bona vacantia, and the Crown had acquired no right either to assert or waive privilege over the documents.
Ruling on the investors' application, Master Clarke refused disclosure of the material sought, holding that the documents retained their privilege on the basis that it was theoretically still possible (and would remain possible until 2036) for Anabus to be restored to the relevant company register, at which point the company would be able to reassert its privilege over the documents.
Master Clarke referred to the decision of the Upper Tribunal in Garvin Trustees Ltd v The Pension Regulator2, by which Master Clarke was bound, and which had held that the right to assert legal professional privilege ceased once the client company had been dissolved. Master Clarke distinguished the present case from Garvin, however, on the basis that the time limit for restoring the company to the register in Garvin had expired (in other words, there was not even a theoretical possibility of the company being able to reassert the privilege), which was not the case here.
On appeal, the claimant investors argued that the right to legal advice privilege was solely for the benefit of an identifiable party (the client; in this case, Anabus) and that party's successors in title, and no third party could assert that right in Anabus' stead. Since Anabus had been dissolved, there was no legal person entitled to assert the right to privilege in the material, and the right ceased to exist (an "ownerless right makes no juridical sense"). With regard to Master Clarke's reliance on the theoretical possibility that Anabus could be restored to the register, the investors asserted that there was in fact no real prospect of that happening. Even if there were, they argued, the "mere prospect" of restoration did not require either the company's former lawyers, or the court, to maintain privilege "on the off chance that such a restoration might one day take place". The court should, instead, deal with the facts as they are at the time of the application for disclosure. Dentons, in turn, submitted that once privilege had attached to a communication, that privilege would only cease if it was waived by the client or some other party entitled to waive it.
Court of Appeal's decision
Having reviewed the relevant authorities as to the rationale for legal advice privilege and referring, in particular, to Lord Taylor of Gosforth's conclusion that the principle running through those authorities "is that a man must be able to consult his lawyer in confidence, since otherwise he would hold back half the truth"; and that a client "must be sure that what he tells his lawyer in confidence will never be revealed without his consent" (emphasis added)3, the Court of Appeal unanimously dismissed the investors' appeal, and refused to order the disclosure of the privileged documents.
However, the decision was based on different grounds from those relied upon by Master Clarke. Lord Justice Lewison (delivering the Court's judgment) stated that:
"...legal advice privilege, once established, remains in existence unless and until it is waived. It is established as a result of the purposes for which, and the circumstances in which, the communication was made. Whether there is no one who can now waive it; or whether the Crown could have waived it but has not done so; does not matter".
Consequently, the decision in Garvin was overruled by the Court of Appeal on the basis that it did not matter if the entity entitled to rely on legal advice privilege was dissolved, nor did it matter if it was still possible for the dissolved entity to be restored to the register. Once it had been created, the privilege attached to the document or communication in question. The only relevant factor was whether or not the privilege had been waived (or is overridden by statute). On the disputed issue of whether the Crown had acquired the privilege and, if so, had waived that privilege by disclaiming its interest in the assets, the Court did not consider this to impact its decision. If the right to waive privilege never passed to the Crown, there was no one who could waive it; if it did pass to the Crown, the Crown had made clear that it did not mean by its disclaimer to waive the privilege.
Comment
The Court of Appeal's decision in Addlesee underlines the importance and strength of legal advice privilege under English law and restates its enduring nature. Once created, the privilege remains intact unless and until it is waived. To make an exception to the general principle of "once privileged, always privileged" in the case of dissolved companies would "undermine the policy of certainty that underpins legal advice privilege".
The judgment also provides helpful clarification to parties which may inadvertently have possession or control over a third party's privileged documents (possibly as a result of a merger or insolvency). Where such parties receive disclosure requests, either from a regulator as part of an investigation or in relation to ongoing litigation, caution should be exercised before agreeing to give disclosure and, where appropriate, legal advice should be taken.
Finally, many businesses will need to consider issues such as privilege holistically and in an international context and there is a great deal of divergence between different systems of law in this regard. By way of example, it is worth noting that this decision reflects one of many areas in which privilege rules under English law do not align with the position in the US, where the majority of the case law suggests that a corporate's legal advice privilege does not survive its dissolution – on the basis that post-dissolution, there is no party that can actually assert privilege.
Footnotes
1 [2019] EWCA Civ 1600
2 [2014] 11 WLUK 469
3 R v Derby Magistrates' Court ex p B [1996] 1 AC 487