Financial Services Compensation Scheme Ltd. v Abbey National Treasury Services Plc

This is an application for disclosure of parts of documents which have been redacted on grounds of legal professional privilege and irrelevance.

The claimant, Financial Services Compensation Scheme Limited (FSCS) is a body established pursuant to Part XV of the Financial Services and Markets Act 2000 to administer a scheme for compensating, among others, private investors whose claims against authorised persons, for example for misselling financial products, cannot or are unlikely to be satisfied.

FSCS has compensated approximately 1,800 investors in respect of losses suffered by them as a result of investing in certain products known as Structured Capital at Risk Products (the products) between 1999 and 2002. The independent financial advisers through whom the investors purchased the products were unable, or were unlikely to be able, to satisfy the investors’ claims against them.

As part of the arrangements under which FSCS paid compensation, the investors assigned to it their claims against the relevant advisers and against third parties. The third parties included NDF Administration Limited (NDF) which sold the products and Abbey National Treasury Services Plc (ANTS) which was closely involved in the development of the products and, as FSCS alleges, in their promotion and marketing. As assignee, FSCS has brought these proceedings against ANTS, and related proceedings against NDF, seeking damages for breach of statutory duty, negligence and misrepresentation.

Formal disclosure under the Civil Procedure Rules has yet to take place, but as part of a process of voluntary disclosure FSCS has provided ANTS and NDF with copies of documents from its files relating to 21 randomly selected investors. The documents include FSCS’s general claim eligibility checklists completed for each of the investors. The checklists are in standard forms and are completed by FSCS staff when assessing whether an investor is eligible for compensation. They are internal documents which are not provided to the investor or any other party.

There are two forms of checklist in issue on the present application. One runs to 11 pages and contains details of the investor and their investment, various questions to be answered yes or no and a section for narrative comments on the claim. On each disclosed checklist in this form, FSCS has redacted three questions and answers (questions 5, 6 and 7 on page 3) and a short part of the narrative comment. The other form is longer but does not contain those questions. In each case, part of the narrative comment has been redacted.

Although the disclosure so far given is voluntary, the same issues as regards the redactions will arise once formal disclosure is given, and the parties are content that the issue as to whether the redactions are properly made should be decided at this stage. ANTS, but not NDF, has challenged the redactions.

A witness statement has been made by Mr R F Caird, a partner in FSCS’s solicitors, setting out the basis on which the claim to legal professional privilege is made. In paragraphs 10 – 13 Mr Caird states as follows:

“10.

The position in relation to the redacted questions and answers in FSCS’s Checklists is as follows. The FSCS legal department is staffed by qualified lawyers. Questions 5, 6 and 7 all refer to documents that contain a distillation of legal advice and/or other documents that contain legal advice given by FSCS's General Counsel and other qualified lawyers within the legal department to the claims teams. Questions 6 and 7 identify the narrow question on which the legal department has advised. When read with their answers, questions 6 and 7 also reveal the substance of the legal advice given by FSCS’s legal department; and even when read without their answers, questions 6 and 7 would, I believe, enable the substance of the legal advice given by FSCS’s legal department to be inferred.

11.

As for question 5, this question does not specifically identify the narrow question on which the legal department has advised, although it does give an indication of material considered by the legal department. Nevertheless, I believe that if unredacted, question 5 would enable both the nature of the advice given by the legal department, and the substance of that advice, to be inferred, and that this would be the case irrespective of whether the answer to question 5 is also unredacted.

12.

Accordingly, I believe that FSCS is entitled to redact questions 5 to 7 on the Checklists, and their answers, on the grounds of legal advice privilege.

13.

Ms Jay’s challenge to the redaction of the narrative sections in the Checklists is entirely speculative. I have reviewed all of the redactions made to the narrative sections included in Ms Jay’s exhibit and confirm that in each case the passages redacted evidence the substance of legal advice given by FSCS’s legal department to the claims teams. Accordingly, I believe that FSCS is entitled to redact these passages on the grounds of legal advice privilege.”

The type of legal professional privilege claimed by FSCS is legal advice privilege, not litigation privilege. The rationale for such privilege, based on the importance of persons being able to seek and receive legal advice, has been explained in several authorities. There are a number of uncontroversial propositions which are relevant to the claim for privilege in this case. First, the privilege applies to communications for the purpose of receiving legal advice not only with a lawyer in independent practice but also with an in-house lawyer employed by the client: Alfred Crompton Amusement Machines Ltd v Customs & Excise Commissioners (No.2) [1972] QB 102. The fact that FSCS obtained legal advice from its own legal department does not affect its entitlement to claim privilege. Secondly, the privilege applies to communications by a client to his lawyer, made for the purpose of or in the course of obtaining advice, as well as to communications from the lawyer: see Three Rivers DC v Bank of England (No.5) [2003] QB 1556. Thirdly, it extends to any record of the advice within the client’s organisation, whether by way of copy, summary or paraphrase: Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1992] 2 Lloyd’s Report 540. Fourthly, it does not matter whether the record is made for communication within the organisation or for use within the organisation or purely as a record: The Good Luck. So it does not matter that the redacted material is contained in checklists used by FSCS staff to assess individual claims for compensation.

The general position was summarised in the judgment of the Court of Appeal in Three Rivers DC v Bank of England (No.5) at [21]:

“We, therefore, conclude that the nineteenth century authorities established that legal advice privilege was a well-established category of legal professional privilege, but that such privilege could not be claimed for documents other than those passing between the client and his legal advisers and evidence of the contents of such communications.”

This was reflected in the declaration of the Court of Appeal in that case that privilege encompassed:

“(1)

Communications passing between the Bank and its legal advisers (including any solicitor seconded to the Bank) for the purposes of seeking or obtaining legal advice;

(2)

Any part of a document which evidences the substance of such a communication.”

The reference to “the purposes of seeking or obtaining legal advice” must now be read in the light of the decision of the House of Lords in Three Rivers DC v Bank of England (No.6) [2005] 1 AC 610.

Turning to the individual passages for which privilege is claimed, I start with questions 6 and 7 and the answers to them. Mr Caird states that questions 6 and 7 “identify the narrow questions on which the legal department has advised” and goes on to state that, when read with their answers, questions 6 and 7 reveal the substance of the legal advice given. In my judgment, the first of these grounds justifies the claim to privilege. The privilege attaches equally to communications by the client to the lawyer as to communications from the lawyer to the client: see the passage cited above from Three Rivers DC v Bank of England (No.5). If a client writes to his lawyer in terms asking for advice on a particular question, the communication is privileged, whether or not any advice is then given. Likewise, any internal record of the advice requested is privileged. If the narrow questions identified in questions 6 and 7 were posed by FSCS to its legal department, those questions record the substance of that request. Alternatively, if a more general request for advice was made to the legal department, which in turn identified the narrow question, or questions which need to be addressed, the questions record that part of the advice given by the legal department which again is privileged.

I had some difficulty with the second ground put forward on behalf of FSCS. It is clear from the checklists that the answers to questions 6 and 7 are yes or no, but it was unclear to me how those answers, when read with the questions, would reveal the substance of the legal advice, if the questions above do not do so.

Mr Flint QC for ANTS invited me to inspect the documents in their unredacted form and FSCS was content that I should do so. In view of a number of uncertainties which I felt, arising out of the terms of Mr Caird’s witness statement, I decided that I should inspect the documents. I now understand how a simple answer of yes or no can reveal the advice given and I am entirely satisfied that privilege is correctly claimed in respect of questions 6 and 7 and their answers. Although Mr Caird states that “when read with their answers, questions 6 and 7 also reveal the substance of the legal advice given by FSCS’s legal department”, he could equally have said that they state the substance of the legal advice. If put like that, I very much doubt that ANTS would have felt able to challenge the claim to privilege.

I deal next with the redactions from the narrative sections. As to these, Mr Caird states that he has reviewed all the redactions and confirms that in each case the passages redacted “evidence the substance of the legal advice given by FSCS’s legal department to the claims teams”. This wording tracks the general statement of principle in Three Rivers DC v Bank of England (No.5). Some criticisms may be made of the rather general statement that the passages “evidence” the substance of the legal advice. Do the passages state the substance of the advice in terms? Do they state that it is advice received from the legal department? Or is it more a matter of inference?

Again, inspection by me of the relevant passages has resolved any doubt. The passages unequivocally state the advice received from the legal department. Privilege is correctly claimed for them.

Finally, I turn to question 5. I repeat what Mr Caird says about this:

“11.

As for question 5, this question does not specifically identify the narrow question on which the legal department has advised, although it does give an indication of material considered by the legal department. Nevertheless, I believe that if unredacted, question 5 would enable both the nature of the advice given by the legal department, and the substance of that advice, to be inferred, and that this would be the case irrespective of whether the answer to question 5 is also unredacted.”

Mr Railton QC for FSCS submitted that if the substance of the advice could be inferred from the redacted passage, it was a passage which “evidenced” the substance of the advice for the purposes of the test set out in Three Rivers DC v Bank of England (No.5) or “revealed” it (see The Good Luck). He relied on Thanki: The Law of Privilege at paras 2.54 – 2.57 and particularly:

“The most obvious of the categories of documents which are not, strictly speaking, actual communications are those documents which constitute secondary evidence of privileged communications.”

Mr Railton submitted that a document from which the advice could be inferred constituted secondary evidence of the advice.

Save as mentioned below, none of the authorities to which I was referred deal with the case of a document which, rather than stating the substance of advice, is a document from which it is said the advice can be inferred. Two considerations lead me to the view that, unless perhaps the inference is obvious and inevitable in which case the document is in substance a statement of the advice or communication, privilege does not attach to such documents. First, it is the communication between the client and lawyer which is privileged either in its original form or in a summarised or paraphrased form. A document which does not contain the communication in any form contains nothing to which privilege attaches. Mr Railton’s submission that a document from which the substance of the communication may be inferred “evidences” the privileged communication treats “evidences” as carrying its fact-finding meaning of “providing an evidential basis”. I do not think that this is the sense in which the word is used in Three Rivers DC v Bank of England (No. 5) and other authorities. It is used, I believe, in the narrower sense, consistent with The Good Luck and other cases, of reproducing, summarising or paraphrasing the communication.

The second consideration is that inference is usually a matter of subjective judgment. Save in very clear cases, views may differ as to whether the inference can be made. A claim to privilege should not, in my judgment, depend on a subjective assessment of this sort. It would, as Sir Sidney Kentridge QC appearing for the Law Society in Three Rivers DC v Bank of England (No.6) submitted in relation to the issue on that appeal, introduce “an unwelcome element of subjective uncertainty”: [2005] AC 610 at 630. There are in any case many documents which are clearly not privileged but from which the substance of legal advice may be inferred. A common example is a minute of a board meeting recording the directors’ decision on a particular matter.

There is a reference to a claim for privilege based on inference in a short passage in the judgment of Finn J in the Federal Court of Australia in Pratt Holdings Pty Ltd v Commissioners of Taxation (2004) 207 ALR quoted in part in Thanki: The Law of Privilege at para 2.57:

“[20] The second principle which is more directly tied to the protection of communications is that the privilege extends to any document prepared by a lawyer or client from which there might be inferred the nature of the advice sought or given. Examples include communications between the various legal advisers of the client, draft pleadings, draft correspondence with the client or the other party, and bills of costs: Propend Finance, at CLR 569; ALR 597-8.”

I do not consider that this provides a basis generally for a claim for privilege in any document from which legal advice may be inferred. Its restricted application is apparent from the examples given.

Having read question 5 with its answer, I do not accept Mr Caird’s view that in the context of the eligibility checklist the legal advice can be inferred and I certainly do not consider it to be a plain and inevitable inference. However, I am of the view that it is artificial to separate questions 5, 6 and 7. Read as a whole, all three questions and their answers are privileged.

In the result, therefore, I uphold each of the claims to privilege asserted by FSCS and it is unnecessary to consider the claim based on irrelevance. I therefore dismiss the application made by ANTS. For the future, I would encourage a plainer statement of the basis of the claim and an avoidance of more general assertions that a document “evidences” or “reveals” the substance of advice.