Life Sciences A-Z - P is for Privilege

Legal professional privilege is a fundamental legal protection. It ensures that a client can request and receive advice from its lawyers, and create documents relating to a dispute, with the confidence that those communications and documents are protected from disclosure, whether to the court, to a governmental or regulatory body, or to its opponents in disputes.

Life Sciences businesses should consider what privileged information they hold and who the privilege belongs to in disputes and investigations but also in scaling-up, reorganisations, mergers and acquisitions, and in “Business As Usual”.

Before we explore some of these scenarios, a reminder of the constituent elements of the two forms of Legal Professional Privilege:

Legal Advice Privilege	Litigation Privilege
Confidential communication
Between a lawyer and a client	Between a lawyer and a client, or between either of them and a third party
For the dominant purpose of obtaining or giving legal advice	When adversarial litigation has started, is pending or is in reasonable prospect
	For the dominant purpose of preparing for the litigation

ISSUE 1: DEFINING THE CLIENT AND THE DISPUTE

Defining the client is important for establishing Legal Advice Privilege, and not free from difficulties.

Scenario 1: A subsidiary of a life sciences company receives advice from external counsel regarding a potential defect in one of their products which could lead to a product liability issue. Can that advice be shared with the board of the subsidiary's parent company and/or included in the board pack for the next meeting without losing privilege?

Courts have taken a restrictive approach to defining the "client" when determining who within a corporate can communicate with external lawyers with the protection of Legal Advice Privilege. Leading cases have held that the “client” comprises only individuals who are authorised to instruct a company's lawyers, although other decisions have recognised the difficulties of this restrictive approach.

Defining the "client" too widely (i.e., including too many people or groups of people) may lead to challenges from opponents in litigation, creating unnecessary uncertainty and risk. However, defining the "client" too narrowly may cause internal difficulty, particularly where decisions need to be taken by multiple individuals, committees and/or boards.

Corporates should therefore consider early on who within a company and/or group should instruct external counsel. Considerations may include which individuals have access to relevant information, who needs the benefit of the advice, and who has authority to give instructions. Corporate groups should also consider which group entities should be clients.

As in our scenario, there will be situations where advice needs to be shared within the business but outside of the "client", e.g. with the board or other decision makers. In such cases, ensure that the advice is given through a legal adviser and properly documented to distinguish it from corporate discussions and decisions that may flow from it, as they will not be privileged.

Identifying the client is less of a concern for Litigation Privilege. Should a claim become reasonably contemplated by a purchaser or user of the product, from that point onwards Litigation Privilege would then likely attach to all communications for the dominant purpose of preparing for that litigation, even if not the “client”.

TOP TIPS

1. Be clear (and realistic and proportionate) about which individuals are authorised to instruct the legal adviser (i.e., those who will be the "client within the client"), ideally in an engagement letter or equivalent scope of request.

2. Where advice is shared outside the internal "client", record the purpose of sharing, mark the advice as privileged, maintain confidentiality, and if possible arrange for the advice to be shared only by those who are "clients".

3. If advice is to be minuted or otherwise recorded in a document that also records non-privileged information (e.g. board minutes or decision papers), ensure that the privileged advice is clearly separated from other material, including any corporate decisions made on the basis of that advice.

4. Should litigation become a reasonable prospect, keep detailed records of when notice is received of potential and actual claims, and consider engaging a disputes adviser to reinforce claims to Litigation Privilege.

ISSUES 2 AND 3: M&A AND PRIVILEGE

Scenarios 2 and 3: The parent company is in talks with potential purchasers of the group and has set up a data room in which it is sharing documents for a due diligence review by the buyer's advisers. Can the advice regarding the product liability issue be uploaded to the data room without losing privilege?

Following the acquisition, the buyer seeks advice regarding the same product liability issue from the subsidiary's original lawyers. Does the buyer also have the benefit of privilege in relation to this advice?

When businesses are sold, it is standard practice for the seller to make documents relating to the target available to potential purchasers conducting due diligence, sometimes including privileged documents.

To guard against loss of privilege, the safest course is not to disclose the privileged material. However, commercial dynamics may make that impossible. The corporate should therefore consider whether the privileged information can be conveyed without showing and/or transmitting any documents to potential purchasers.

Any third parties receiving the privileged information should anyway give appropriate undertakings, including maintaining confidentiality, acknowledging that privilege protects relevant documents, belongs to the corporate, and is not waived. The corporate might also require recipients to notify it of which individuals have received the privileged material.

Corporates should also identify who the privilege belongs to, i.e. who is the client (see above). If pre-existing privileged advice belongs to the seller (e.g., the parent company or the shareholders) and not the target, the seller should consider instructing the target to delete it pre-sale. Sellers should also be careful that advice relating to the sale process itself does not end up, or remain, in the target’s files (including individuals' mailboxes).

TOP TIPS

5. Ensure that any information shared with third parties is handled appropriately, and protected by appropriate confidentiality restrictions, including an express term that privilege is not waived.

6. Carefully document when privileged information is shared with third parties and the restrictions the information is subject to. During sale processes, and particularly asset or business sales, consider who any relevant privilege belongs to and whether it is necessary or appropriate to transfer to the buyer as part of the transaction documents.

ISSUE 4: INVESTIGATIONS AND THE MANY HATS OF IN-HOUSE COUNSEL

Scenarios 4: In order to gather information regarding the potential product liability issue, the subsidiary's directors ask the in-house lawyer to interview members of staff who handle the relevant manufacturing process (which takes place in a factory outside the UK). Does privilege attach to this process, or any portion of it?

In-house lawyers often have multiple roles. Any non-legal aspects of their roles will not attract Legal Advice Privilege.

Cases have also held that emails which are part of an in-house lawyer's information-gathering even for the purpose of obtaining legal advice from external lawyers do not necessarily attract Legal Advice Privilege. In our scenario, the proposed information-gathering by an in-house lawyer from employees might not attract the protection of Legal Advice Privilege. Creation of documentation and communications in investigations should therefore be undertaken with care and in the knowledge that such documents may be disclosable to a litigation opponent or regulator in the event of proceedings.

Where another jurisdiction is involved (in our example, with overseas employees), other regimes may apply. Legal Professional Privilege under English law is a substantive right, but if challenged in another jurisdiction then legal rules applied by that court or tribunal may apply. If your dispute has an international dimension that means it might not end up in the English court, consider whether advice should be sought in relation to other legal systems.

TOP TIPS

7. In-house lawyers should be clear about the purpose of their communications, and mark communications requesting information or providing advice accordingly (such as "For the purpose of advising on…", "My legal advice is…", "As a lawyer…"). Where possible, all communications should also be sent via the internal client in order to preserve Legal Advice Privilege.

8. Consider carefully the underlying purpose of internal investigations, and record when their dominant purpose is in reasonable contemplation of litigation. In case of uncertainty, be conscious that communications may eventually be disclosable to a counterparty or regulator.

9. If your business or its supply chain is multi-jurisdictional, be conscious that communications or documents created in or shared with other jurisdictions may be subject to different privilege regimes and consider whether advice should be sought.

Final Thoughts

Privilege is a complex topic, and in our experience often only tested once a dispute arises, well after any corporate decisions have been made that may affect whether particular communications attract privilege. Life Sciences companies should consider early on what steps they should take to maximise the protection.

TOP TIPS

10. Take advice from disputes counsel early whenever there may be an advantage in communications or documents attracting privilege in the event of a dispute.

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