As you would expect the law protects clients’ communications with their solicitor. This is known as ‘privilege’. In essence any communication which is privileged does not have to be disclosed to a third party even as part of disclosure during litigation.
The two main types of privilege are:
- ‘Legal privilege’ which relates to communications between a client and their solicitor which is for the purpose of giving legal advice;
- ‘Litigation privilege’ which relates to communications between a client and their solicitor or a third party when a dispute is in contemplation and for which the dominant purpose relates to that dispute.
However the above are simple definitions of privilege as there are exceptions and this is not a straightforward area of law, as Lloyds Banking Group PLC (‘Lloyds’) have recently discovered to their detriment.
There is currently a group action against former directors Sir Victor Blank, Eric Daniels, Timothy Tookey, Helen Weir and George Truett Tate of Lloyds in relation to alleged losses suffered by shareholders following the acquisition of HBOS PLC.
The shareholders claim that key information about this deal was kept from them and Lloyds claimed that this information was protected from disclosure to the shareholders as it was privileged information.
The starting position was that Lloyds were not entitled to claim privilege against its own shareholders. However, there is an exception to this rule where there is a dispute between a company and its shareholders.
The question the court had to resolve was whether the exception to the general rule applied and if so to what documents.
Lloyds sought to argue that there was privilege over all advice received after they announced the acquisition of HBOS on the basis that a dispute was contemplated.
Unfortunately for Lloyds, the Judge disagreed.
He confirmed the primary position was that Lloyds could not claim privilege against the shareholders not least because the company had paid for legal advice out of the company’s assets and therefore the shareholders had indirectly paid for that advice.
Furthermore, the exception to this primary position would only apply if Lloyds faced actual, threatened or contemplated litigation with its shareholders.
He ruled that this was not the case when Lloyds announced the acquisition of HBOS. It was not sufficient that some shareholders said they were unhappy with the acquisition to demonstrate that a dispute was contemplated.
Furthermore even if Lloyds had been able to demonstrate that a dispute was contemplated this did not give them blanket privilege over all advice i.e. the shareholders would be entitled to see anything which did not relate to the dispute.
It is most important therefore that companies, and in particular directors, are aware of the fact that they may have to disclose legal advice to their shareholders. If there is a real possibility of a dispute with shareholders in the future then discuss this with your solicitor before receiving the legal advice.
For further information on legal and litigation privilege or any other advice regarding a dispute, please contact our Dispute Resolution team on 061 475 7676.