In its judgment on 1 March 2004 in Three Rivers District Council & Others v The Governor & Company of the Bank of England, the Court of Appeal confirmed that the scope of legal advice privilege is far narrower than many had previously assumed ( EWCA Civ 218; see also "Legal advice privilege" (www.practicallaw.com/A39208), Bulletin, Commercial law, this issue and for background see feature article "Privilege: What can you protect?", www.practicallaw.com/A31595).
While the precise effect of the judgment is unclear, it is already apparent that the protection of legal advice privilege will not apply to many documents which previously it had been thought would be covered. The decision is therefore important for all lawyers, whether or not they are involved in litigation.
The decision concerns communications passing directly between the Bank of England (the Bank) and its solicitors. The communications arose in the context of the Bank's preparations for its submission to the Bingham Inquiry on the collapse of the Bank of Commerce and Credit International S.A. (BCCI). Creditors of BCCI had sued the Bank for misfeasance in public office and had sought disclosure of the documents effecting those communications.
Traditionally, it had been assumed that legal advice privilege (not to be confused with litigation privilege) extended to all communications between solicitor and client on matters within the ordinary business of the solicitor and referable to that relationship. This was thought to be so even if the communications did not actually contain legal advice on the basis that communications are privileged if they form part of the continuum of communications and meetings between the solicitor and client (Balabel v Air India  Ch 317).
In Three Rivers, the court held that, contrary to the traditional view, legal advice privilege does not automatically attach to most communications between a client and his solicitor. The court explained that the fact that work is done within what may be the ordinary business of a solicitor does not necessarily mean that it attracts privilege.
The court indicated that the test for the application of legal advice privilege is that, where a solicitor-client relationship is formed for the purpose of obtaining advice or assistance in relation to "rights and liabilities", broad protection will be given to communications passing between solicitor and client in the course of that relationship. No guidance was given as to what that broad protection might be. The court went on to say that privilege will only apply when the dominant purpose of the communication is the obtaining of advice and assistance in relation to legal rights and obligations.
It appears, therefore, that it is necessary to examine both the nature of the particular solicitor-client relationship on the one hand and the content of particular communications on the other. The court drew a clear distinction between situations where communications are in respect of advice about legal rights and liabilities, which are covered by legal advice privilege, and communications where the advice provided by the solicitor is primarily in relation to presentational matters, which are not. No guidance was offered as to how to determine what presentational advice is nor whether it would ever be privileged in the context of a solicitor-client relationship that does meet the test.
While some documents will clearly fall on one or other side of the line, the position in relation to many others will be uncertain. The most important message from the case is that the client must be aware that communications with their solicitors may not be subject to legal advice privilege unless the rights and liabilities test is satisfied. The obvious area of exposure is that of public inquiries, statutory or non-statutory, but this decision also affects the application of legal advice privilege to any non-contentious business a solicitor advises on.
The decision has raised, but not answered, a number of difficult questions:
Where the relationship is formed for the purpose of obtaining advice in relation to rights and liabilities, privilege will apply generally. But what of a particular communication within that relationship that is made without the necessary dominant purpose: will that communication attract the broad protection mentioned?
Even where a solicitor-client relationship is formed for purposes other than giving advice in relation to rights and liabilities, communications which are made in the context of seeking specific legal advice will be protected. But to what extent are the surrounding communications protected with a view to barring access to, or speculation on, the contents of the privileged communications?
Where a witness is exposed to the risk of liability as a consequence of his role in an inquiry, the court will accept that advice in connection with the inquiry will be covered by the rights and liabilities principle and will be protected. But what of situations, such as in the Hutton Inquiry, where the witness will be exposed simply to criticism?
The court concluded that legal advice privilege was a difficult and unsatisfactory area of law and invited the Law Reform Committee to review it. Although the court refused permission to appeal to the House of Lords, the indications are that an application for permission will be made directly to the House ofLords.
Finally, there has already been a practical application of an earlier Three Rivers decision in United States of America v Philip Morris & Others  EWHC 3028 (Comm). It was held that the courts must take a more critical approach to assertions of privilege and a solicitor's own assertion as to privilege was not conclusive. Whether, generally, there will be a marked increase in disclosure applications remains to be seen.
Philip Morris was determined before the latest Three Rivers appeal and the judge held that the courts must remain careful not to allow incursions into a continuous sequence of communications made for the dominant purpose of obtaining legal advice (following Balabel). It is currently the subject of an appeal. Lawyers and their clients will be interested to see how this latest Court of Appeal decision in Three Rivers will be applied in the Philip Morris appeal, particularly with regard to the application of Balabel.
Dan Lavender is a partner in the litigation department at Macfarlanes.