I had the privilege to be the initial General Counsel of the Legal Services Board, the oversight regulator for our profession. In that capacity I had the opportunity to look at length at the concept of Privilege and its historical underpinnings – including through making an intervention to the Supreme Court in the Prudential Case.
I am going to give a few personal thoughts on:
- The origins of privilege
- How this was impacted by the Prudential case and the Legal Services Act
- My perception of the direction of legal services regulatory travel since then
- A few thoughts on contrasting the Hong Kong [Citric] case with RBS rights
- Observations on the impact of technology; and
- A question about what the Modern Slavery Act might suggest about the future of Privilege – without necessarily endorsing that suggested path.
In the book Newton and the Counterfeiter there is a wonderful but somewhat alarming account of how Newton, in his second role as the Master of the Royal Mint, successfully had a particularly prolific counterfeiter convicted – the fact that it was in the wrong court, that the charges actually related to the previous person in the dock, that the evidence was largely cooked up, the counterfeiter had no representation and that there was very little process, mattered little – after all he was bound to be guilty otherwise he would not be in the dock and everyone was in a hurry as it was cold because the court had no roof as that reduced the chances of the judges catching whatever illnesses everyone else in the court had!
Roll forward about 100 years and you start to see the emergence from the judiciary, among other things, of the concept of privilege. The expressed aim of this judicial legal creation was to allow individuals to be properly advised of their rights and obligations at law in order that those people could then act properly within the law and/or in their interaction with the courts.
Essentially if you had a full and frank discussion in confidence with your lawyer about what you had done or were planning to do then there could be no excuse of ignorance of the law – nor of misdirection of the client by the lawyer based on only partial information being provided by the clients. So the interests of a person in being able to be fully and properly advised on the law also helped to reinforce the legitimacy of the courts as fair organs of justice.
As time rolled by the discrete concepts of legal advice privilege and litigation advice privilege emerged – the former being essentially to allow people to talk openly with their advisor about what they planned to do – in order to avoid doing things wrong in the first place; the latter, being more focused on ensuring that people behaved properly before the courts – arguably, as much to ensure that the courts were fairly and properly used, as to protect individuals rights
Three key points are particularly important to remember:
- privilege has always been a narrowly defined exception in the interests of justice to the general principle of total candour before the courts – more of a civil code type of concept of rights only existing if specifically permitted, rather than a common law one of permitted unless prohibited; and
- it is a right of the client provided by the legal advisor and constrained by that advisor and not something innate in the advisor; and
- as a court originated law, it will always be capable of being subjected to explicit parliamentary overwriting – which we have seen numerous examples of in recent years
As the 1700s ground on our own profession got caught for practising fees (well actually an annual stamp tax on our certificates) and got a licensed monopoly to collect property document stamp taxes – it is probably valid to say that becoming tax collectors was the making of our profession!
As the legal trade guilds developed regulatory arms, a second concept started to emerge into the court decisions around privilege – that the proper understanding of and administration of privilege by lawyers would be taught through their qualification and that breaches of that by the lawyers would be sanctioned by their regulator as well as by the court.
Which allows us to skip to the end of the 20th Century!
By when, this had evolved to the point that privilege could only be provided to a client by a regulated lawyer because of the teaching and sanctions points.
Illustratively in much of Europe in-house lawyers cannot remain regulated by their trade guilds when working in a non law firm and are entirely economically dependent upon one client to pay their rent and not upon several. So, you can see in a nutshell the reason that the ECJ has consistently ruled that in-house lawyers are influencable and have no higher regulatory calling and so cannot be relied upon to apply privilege as the courts intend in a way that the courts are willing to trust.
The Legal Services Act 2007 (about 20 years in the making) had many goals – but among the more important ones where:
- to ensure that regulation looked after consumers and the state legal infrastructure – the courts, land registry etc – and not the vested interests of the trade guilds come regulators;
- to make the basis of regulation more coherent (illustratively the reserved legal activity of oath taking is still defined, pretty much as “whatever was common practice in 1883” – without saying what that was!)
- to focus more on regulation of people and entities providing specified legal services – reserved legal activities – where regulation was needed to protect those consumers and the state infrastructure - rather than to preserve the concept of regulation by title because, as the CMA’s survey last year illustrated, for most users of legal services our title, let alone our business ownership models, mean nothing to them; and critically
to allow new things to be regulated and new bodies to become regulators.
It was in this last context that the worried cry from traditionalists could start to be heard “the accountants are coming!”
Accountants do a lot of law – whether it be tax law, Companies Act related audit and accountant law, employment and pensions benefit law, corporate secretariat, competition law pricing compliance – there is a whole lot of law going on in accounting.
They also watch the bottom line of their businesses and look to the longer term much better than most law firms do. Which is why continued expansion into more law seems logical to them and why they will push hard at anything which seems to give an entrenched anti-competitive advantage to their advisory rivals.
And this, in the face, apparently, of some City law firms advertising privilege as a competitive advantage over accountants in the provision of tax law advise, is the root cause of the Prudential case.
The accountants’ argument about their tax law advice, essentially, was:
“If it walks like a duck, swims like a duck and talks like a duck then why should we be the only chef in the kitchen that cannot serve it up to the customer on a privileged plate?!”
The conclusion- sadly, but not unexpectedly, despite the Legal Services Board’s intervention in the Supreme Court, was that this was because the regulatory training, compliance and sanction standards visited on regulated lawyers by the SRA, BSB et al meant that privilege would be used appropriately for the clients and without abusing the courts.
However, the Supreme Court declined to provide any answer as to which aspects of that regulatory environment needed to be at what standard in order to provide their Lordships with adequate assurance about the grant to regulated lawyers of their legal concept of privilege.
Which gave the LSB a problem, because it needed to form a view under the Legal Services Act about whether an applicant to be a legal services regulator was proposing a regulatory regime that was adequate in all respects to train, supervise and sanction the people performing the reserved legal activities that the regulator was proposing to regulate.
The Act expressly states that the people whom are regulated by a new legal regulator are granted the ability to privilege their engagements with their clients in respect of that reserved legal activity.
So the LSB needed to form a judgement as to the adequacy of the putative regulator’s proposed regulatory framework – including in respect of the framework around training and disciplining regulatees around privilege.
The Supreme Court declined to assist and so the LSB had to form its own view a little while later when granting an application to a new regulator – the ICAEW. So despite the Prudential decision the accountants had become privileged – albeit in the limited context of probate. And, despite their recent set back in seeking wider legal regulatory approval from the LSB, Arnie the Accountant “will be back”.
So briefly where does that take us now – 7 brief thoughts?
Firstly the regulatory framework for lawyers is continuing to focus on regulating activities only as far as possible – see the references by the SRA last year to the “brand of solicitor”; to their consultations on allowing in-house lawyers to practice non reserved legal activities commercially outside of a regulated law firm – in short the number of contexts where a privilegable advisor is giving privilegable advice are shrinking.
Secondly; despite the HK Citric case 18 months or so ago which, essentially, said “never mind the regulatory title of those involved, look at the underlying purpose of the advice request”; the Courts here are reasserting strongly the narrowly defined view from Three Rivers (No5) through the RBS Rights case last autumn and the very narrow application of privilege in investigatory work this spring. So the narrowly defined exclusion to the general principle of total candour is being actively reinforced.
Thirdly, structural change to the court system – while less directly relevant to the law practised here - the increased use of Ombudsman processes and the drive towards online courts - because it is cheaper than refurbishing the physical court estate - is likely to reduce the number of contexts in which privilege is relevant generally – which may well have knock on effects to its wider relevance and application.
Fourthly, technology – something that I became painfully aware of a decade ago during a dawn raid that I received at Dell where the Commission borrowed OFT, as was, staff and we had to negotiate which documents they could see and in what capacity. In an online world it is ever more a case of “see everything”, because of the way that searches work, and then agree what you “have not really seen” which is not entirely helpful for a meaningful application of privilege.
Fifthly; information propagation. PLOP – Practical Loss of Privilege is a real issue in, as wired and electronically careless a world as we now live in organisationally and there will, in many cases, be very little real value in seeking to maintain privilege in documents within an organisation because of governance controls, or lack of them, and because of the volume of other documents that will be floating around the entity that are disclosable and tell the story to the extent needed – even if the privileged ones are held back.
Sixth – Simmer on this – SMR the Senior Managers Responsibility Regime for all FS regulated firms looks highly likely to make the GC of FS entities personally accountable and with personal proactive reporting obligations (as all the responsible senior managers will) to the PRA about any breaches or failures from Autumn 2018. The FSA’s consultation paper on this issue at this time last year saw a very limited and greyly defined context in which privilege would be able to overcome this disclosure obligation and challenged in-house lawyers to make the case as to what should be privileged and why – I have not seen anything further about what if anything was argued about this by that community or how successful it was.
However when your personal livelihood is on the line if you do not report rapidly it is hard to see any GC or other SMR affected manager not reporting first to the PRA to protect themselves and then trying, if applicable, to claw back whatever privilege they can later. So again, while not directly germane to our practice areas, it is likely to have knock on effects to the credibility and standing of privilege generally.
Finally the direction of law- not just in terms of express statutory provisions and exclusions but also in the context of a growing tendency towards law that drives at:
“clean hands, full disclosure, guilty by default but sanctions minimised to the extent that you show that you have tried really hard to stop the bad thing from happening, have acted promptly and, often, have self-reported promptly”
- whether this is modern slavery, anti-competitive practices, GDPR, Tribunal practices….etc. Now many of these things are visited by the public sector on the private sector but it is hard to see why this trend should not also apply the other way in future – especially in a post Brexit World where, presumably some retrenchment from the ECHR’s and ECJ’s view of the World will be necessary to demonstrate politically why it was “beneficial” to leave.
So rumours of the lingering death of privilege may not be greatly exaggerated!