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Not-so-secret identities

The matter under consideration in Loreley Financing (Jersey) No 30 Ltd v Credit Suisse Securities (Europe) Ltd and others [2022] EWHC 1136 (Comm), [2022] All ER (D) 65 (May) came before the High Court earlier this year. The case arose out of Loreley Financing’s (LF’s) purchase of notes from Credit Suisse (CS) for US$100m, as part of a collateralised debt obligation transaction in 2007 linked to residential mortgage-backed securities (RMBS). LF alleged fraudulent misrepresentation as well as unlawful means conspiracy against CS in relation to the securitisation of the RMBS and the representations made to LF in the course of the sale of the notes.

CS responded to these allegations by simply arguing that LF’s claims were time barred. This allegation centred around the suggestion that LF knew (or could have reasonably known of) certain facts at an early enough point in time (specifically, November 2012 or 2015) to provide CS with a limitation defence to the claims.

Establishing ‘knowledge’ in this case was not, however, straightforward. LF was a special purpose vehicle (SPV) with no employees, and LF’s directors were supplied by a professional services company. An initial hurdle for CS was, therefore, establishing whose knowledge was attributable to LF for limitation purposes.

CS adopted the position that the dayto- day decisions of LF were made by two German banks—namely IKB Deutsche Industriebank AG (IKB) and KfW Bankengruppe (KfW). More specifically, IKB was the entity CS claimed was responsible for LF’s record-keeping. A subsidiary of IKB also provided LF with investment advice in relation to the note purchase. Following the onset of the 2007 financial crisis, IKB was then rescued by KfW. KfW became a creditor of LF and had security over LF’s assets—including the claim against CS. CS alleged that IKB decided to launch the litigation against CS and KfW provided the necessary instructions to LF’s lawyers, Reynolds Porter Chamberlain (RPC). On this basis, CS argued that the knowledge of these banks could be attributed to LF for the purpose of considering limitation.

Part 18 request

To assist with the above, CS proceeded to make a Part 18 request (under CPR 18) regarding whether (among other things) KfW was providing instructions to RPC. While LF accepted that the identity of those providing instructions might be relevant ‘as a building block (albeit a small one) for Credit Suisse’s contention that the claims… are time barred’ (para [10]), it refused to answer this request, asserting that the identities of the individuals from whom RPC was receiving instructions were subject to legal professional privilege. Subsequent exchanges clarified that LF sought to place principal reliance on the applicability of litigation privilege.

Application for orders

CS subsequently issued an application seeking orders on various matters it considered relevant to its contentions that LF’s claims were time barred—namely orders that:

1. the names of the individuals instructing RPC were not subject to legal professional privilege; and

2. certain documents (including RPC’s engagement letter) be provided. While  LF had provided early disclosure of the engagement letter, the names of the individuals providing instructions to RPC had been redacted on the basis of LF’s claim to litigation privilege.

High Court findings

On considering the matter in the High Court, Mr Justice Robin Knowles CBE’s headline finding was that the names of the individuals authorised to instruct RPC were not protected by privilege.

In reaching this conclusion, Robin Knowles J considered a number of pertinent issues relating to the scope of both legal professional privilege and the interaction between the different strands of legal professional privilege.

During the course of the proceedings, CS argued that because legal professional privilege protects communications rather than facts, unless exceptional circumstances are identified (which render the identity of the client an integral part of a confidential communication), the identity of the party giving instructions to a lawyer will not be privileged. CS concluded that as there were no exceptional circumstances at play here, the identities of the individuals instructing RPC were not privileged.

When making his judgment, Robin Knowles J referred to a number of cases in which privilege was held not to apply to the client’s identity. LF sought to distinguish these cases from the matter in hand, emphasising that they addressed legal advice privilege specifically (as opposed to litigation privilege). LF continued by suggesting that ‘different policy considerations’ apply to the application of litigation privilege, with ‘the protection conferred by litigation privilege’ responding to ‘the particular sensitivities and demands of the adversarial process’ (at para [30]).

This led to queries as to whether litigation privilege can apply to communications between a lawyer and client, despite the fact that legal advice privilege also applies in such circumstances. When considering this issue, as a starting point, Robin Knowles J acknowledged that legal professional privilege is ‘a single integral privilege, whose sub-heads are legal advice privilege and litigation privilege’ (see Three Rivers District Council v Governor and Company of the Bank of England [2004] UKHL 48, [2004] All ER (D) 176 (Nov) at para [105] per Lord Carswell). While these sub-heads have ‘different characteristics’, they are by no means mutually exclusive and (provided the tests for both types of privilege are met) are capable of applying to the same communication. However, Robin Knowles J was quick to emphasise the importance of recognising the ‘limits to [this] proposition’ which:

‘…does not disturb the compass of litigation privilege (which requires actual or contemplated litigation) or of legal advice privilege (which does not). And it does not disturb the explanation and emphasis in the authorities of the broad point that communications with third parties will only be subject to legal professional privilege if the test for litigation privilege is met’ (at para [34]).

On it being established that litigation privilege could in principle apply to lawyer/ client communications (which is clearly an orthodoxy), LF sought to convince the court that the identities of the individuals instructing RPC in this case were protected by litigation privilege. This argument was premised on the basis that the identities of the individuals instructing LF’s lawyers were caught within the ‘zone of privacy’ surrounding the preparation of LF’s case. Building on this, LF suggested that if these identities were not protected by privilege, the revelation of the identities of the individuals instructing RPC might give clues as to the content of the instructions and LF’s overarching strategy.

On this point, Robin Knowles J concluded that litigation privilege can (again, in principle) apply to the identity of those giving instructions. More specifically, there may be circumstances in which the identity of the instructing party cannot be disclosed without waiving privilege. However, privilege will not always apply, and when considering whether the identities of those communicating with a lawyer are privileged, a two-part test should be applied, namely:

1. Is the communication privileged?

2. If so, will that privilege be undermined by the disclosure of the identity sought?

It was emphasised that ‘this answer applies as much where the person communicating does so as a person authorised to give instructions to the lawyer on behalf of the lawyer’s client as where that person has a different role’.

However, Robin Knowles J was also keen to emphasise that when deciding whether privilege applies to an individual’s identity, ultimately, each case will turn on its facts.

The key issue is whether disclosure of the identities of those giving instructions might provide some indication of the content of the instructions.

A clear distinction?

While a clear distinction between legal advice privilege and litigation privilege remains, this judgment now confirms that litigation privilege and legal advice privilege can apply to the same communication. While this has certainly been the view of most practitioners, the judgment does provide some welcome clarification on the interaction between the different strands of privilege. However, this is likely to be largely theoretical in practice, as if legal advice privilege applies to a particular communication, it will not usually be necessary to claim litigation privilege in addition.

This case provides a stark reminder that, while the identity of instructing individuals may be privileged in some circumstances, those situations are likely to be rare. Efforts to argue for a broader application of litigation privilege—on the basis that the identity of those providing instructions should always be protected as falling within a ‘zone of privacy’—has been firmly rejected.

Perhaps most importantly, this case has set out a clear two-stage test to be utilised when considering whether the identity of a party communicating with a lawyer is privileged—which will have a relatively broad scope, applying both where a party is authorised to give instructions on behalf of the lawyer’s client and where a party has a different role.

The Court of Appeal has, however, granted permission to appeal in this case,
encapsulating both the complexity and contentious nature of the issues at play in this matter. It will be interesting to see if the rejection of efforts to expand the ‘zone of privacy’ will be maintained and the two-stage test endorsed.

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