It is of the utmost importance that confidentiality in legal communications is maintained within the context of financial services. In this article we revisit and provide an overview of the fundamental principles surrounding legal professional privilege, consider how the case law has developed in this area with reference to local (where applicable) and English judgments and set out some practical guidance to be taken from these decisions, with reference to the law in Guernsey, Jersey, Cayman and the BVI.
For all financial service businesses in the Channel Islands, the
Cayman Islands and the BVI ("BVI") it has always been of
the utmost importance that confidentiality in legal communications
is maintained. In this article we revisit and provide an overview
of the fundamental principles surrounding legal professional
privilege, consider how the case law has developed in this area
with reference to local (where applicable) and English judgments
and set out some practical guidance to be taken from these
Legal Professional Privilege
Privilege is a rule of substantive law and is a fundamental legal right, not a matter of discretion. Legal professional privilege protects confidential communications between a client and its lawyer from production to third parties or to the relevant Court. There are two main forms of legal professional privilege: legal advice privilege and litigation privilege. For both forms of privilege, it is matter of substance over form, meaning:
1. a document must be confidential to remain privileged. If that confidentiality is lost so will its privileged status;
2. labelling a communication as "privileged and confidential" does not make it so; and
3. copying an otherwise non-privileged communication to a lawyer
or communicating with a lawyer for a purpose that is not seeking
legal advice or is not in contemplation of litigation will not make
Litigation privilege is premised on the basis that parties should be able to prepare for proceedings without the risk that an opponent has sight of communications or documents which are brought into existence as part of those preparations. Unlike legal advice privilege (discussed below), litigation privilege can apply to communications between a lawyer and a client, a lawyer and a third party or a client and a third party.
To attract this privilege, litigation must be reasonably contemplated or in existence. In the case of Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited  EWCA Civ 2006, the Court of Appeal considered what proceedings might be covered by litigation privilege. The Court considered that "proceedings" could extend to criminal proceedings and that prosecution could be "reasonably contemplated" where lawyers were engaged to conduct the internal investigation. Therefore, a company's internal investigations in the context of regulatory proceedings may attract privilege, in certain circumstances. The fact that those proceedings have not yet commenced is not necessarily determinative, with each case turning on its own facts.
Litigation must also be the "dominant purpose" for which the document was created and / or the advice was sought. The dominant purpose must be giving or receiving legal advice in relation to the litigation or for collecting of evidence for use in the litigation. This raises the question as to whether privilege attaches if a document is, for example, produced for a number of purposes. The Court will examine all the circumstances to determine the dominant purpose subjectively.
The "dominant purpose" approach was followed in the Cayman Islands by Smellie CJ in the case of Johnston v Arbitrium (Cayman Islands) Handels A.G [1997 CILR 36].
BVI law also follows English law in the area of privilege and has codified the same pursuant to the Evidence Act, 2006 (the "EA"). As regards litigation privilege, section 114 of the EA provides a general protection against production of evidence which involves disclosure of confidential communications or of the contents of a document which was either (i) created for the dominant purpose of providing or receiving professional legal services in relation to legal proceedings (anticipated or pending), or (ii) for the dominant purpose of preparing for or conducting the proceedings.
Legal advice privilege
Legal advice privilege applies to confidential communications between a client and a lawyer which are created for the dominant purpose of giving or receiving legal advice.
Legal advice privilege applies to any document that meets all of the following criteria:
1. the document is a confidential communication;
2. it passes between the lawyer (this includes in-house and external lawyers) and the client (which is construed narrowly to mean individuals who are authorised to give instructions and receive advice; it does not capture all employees of the client company); and
3. it is prepared for the purpose of giving or receiving legal
Unlike litigation privilege, legal advice privilege is also available in non-contentious circumstances and can apply whether or not litigation is pending or contemplated. Draft communications between a lawyer and a client attract privilege even if they are never actually sent. Further, the working papers and notes of lawyers are generally privileged. If any of the above criteria are absent, the communication will likely lose its privileged status.
As to what constitutes legal advice, this has been interpreted widely to include material which evidences the substance of confidential communications between clients and their lawyers. As Lord Scott said in Three Rivers No 6  UKHL 48, the test is whether the advice relates to "the rights, liabilities, obligations or remedies" of the client under private or public law. If it did, then the question was whether the occasion on which the communication took place, and the purpose for which it took place, were such as to make it reasonable to expect the privilege to apply.
As with litigation privilege, legal advice privilege is also subject to the dominant purpose test as recently confirmed by the Court of Appeal in Civil Aviation Authority v R Jet2.com Ltd  EWCA Civ 35. In that case Airline Jet2 sought disclosure of correspondence connected with a Civil Aviation Authority press release in the UK. The drafts had been circulated internally including to the in-house lawyers. Privilege was asserted, amongst other things, on the basis that in-house lawyers were copied in. However, the Court of Appeal upheld the earlier decision that the correspondence was not privileged in circumstances where the dominant purpose was commercial as opposed to legal in nature and found that the involvement of a lawyer did not automatically engage the protection of legal advice privilege. Simply copying in a lawyer may not therefore be determinative.
Who is the client?
As to who is the "client" this, again, has been the
subject of some debate and controversially in Three Rivers No 5.
 EWCA Civ 474 the Court of Appeal overturned the decision of
the Court at First Instance and determined that communications
passing between a lawyer and employees who were non-clients i.e.
not authorised individuals for the purposes of obtaining legal
advice within a corporate entity, did not attract privilege. Whilst
it was argued that the internal documents were privileged because
they were prepared with the dominant purpose of obtaining legal
advice, that was rejected as they did not form part of the
communications between the lawyer and its true client.
This restrictive approach was confirmed in The RBS Rights Issue Litigation  EWHC 3161 (Ch). In this case, records of interviews conducted with employees were held not to be covered by legal advice privilege as the "client" was only those individuals authorised to seek and receive legal advice. The case concerned the disclosure of records of interviews and concluded that information from an employee is to be treated as no different from information from third parties even if that information has been collated to be shown to a lawyer to enable advice to be given.
The EA also defines "client". The "client", as defined in section 113 of the EA, takes on a wider meaning than the English common law definition, including:
1. an employee or agent of a client;
2. a person acting, for the time being, as manager, committee or other person however described, under a law that relates to a person of unsound mind and in respect of whose person, estate or property, the person is so acting; or
3. if the client has died, the personal representative of the
Furthermore, in relation to confidential communications made by a client in respect of property in which the client had an interest, it also includes a successor in title to that interest.
Whilst controversial, the narrow definition of
"client" (albeit broader in the BVI) remains and it is
imperative that financial businesses in the Channel Islands, the
Cayman Islands and the BVI consider carefully their internal
processes if they are to protect their communications. We would
highlight the following practical considerations for such financial
1. carefully consider how to define the "client" in the engagement letter;
2. only the defined "client" should deal with lawyers;
3. only the defined "client" should prepare briefing notes, letters of instruction, meeting agendas or minutes;
4. make it clear to other employees that no documents containing information relevant to the seeking of legal advice should be created without express clearance from the defined "client"; and
5. discourage non-"client" employees from reporting to the defined "client" on the relevant matter, or from copying anyone else to those communications.
Whilst not binding in Guernsey, Jersey, the Cayman Islands and the BVI, but highly persuasive, there is a strong possibility that recent case law in England would be followed in these jurisdictions. The Courts could apply the more generous approach to legal advice privilege as has been adopted by, for example, Singapore and Hong Kong. However, there is little certainty that it would do so. Companies should therefore exercise an abundance of caution and seek legal advice as to their internal processes at the earliest opportunity.
Originally Published by Walkers, November 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.