In recent years, there has been mounting debate in the Netherlands about the scope of legal privilege. The discussion is not confined to criminal and civil proceedings only, but extends to investigations by regulators and bankruptcy trustees. The main argument used against legal privilege is that full disclosure serves a common, public interest that should transcend any personal, individual right to legal privilege. In its most recent ruling
on the topic, the Supreme Court rejected this argument in the context of inquiry proceedings, reaffirming that legal privilege outweighs the public interest that the truth should come to light. The issue was raised, and this principle was upheld, in corporate inquiry proceedings, showing that legal privilege extends to this type of proceedings.
We briefly discuss the context and explain the practical implications of this decision.
In 2018, the Enterprise Chamber of the Amsterdam Court of Appeal ordered a corporate inquiry into SNS REAAL N.V. and SNS Bank N.V. (together SNS). Corporate inquiries are civil proceedings where the court appoints one or more investigators to investigate if a company has been mismanaged in relation to selected matters or during a specific period.
The court-appointed investigators requested several types and categories of documents from SNS, including board minutes, board resolutions and several categories of correspondence. During the committee's work, the question arose whether SNS could refuse disclosure based on the privileged nature of the information requested or submit redacted versions of the documents requested.
Supreme Court's ruling
Four questions were put to the Supreme Court:
- Does the public interest of full disclosure by legal entities in inquiry proceedings transcend the individual right to legal privilege?
- Does the right to refuse disclosure of legally privileged information require a legal basis?
- Does information cease to qualify as being subject to legal privilege if it is included in board minutes and board resolutions?
- Does information cease to qualify as being subject to legal privilege if it is included in correspondence between the company and someone other than the company's lawyers?
The Supreme Court's general answer to all of these questions was no. The court held that, as a general rule, information is subject to legal privilege when it has been entrusted to a lawyer or a civil law notary (we will refer to both professions as lawyers) in his or her capacity as lawyer and/or when the information reflects legal advice given by the lawyer. This conclusion is based on a general principle of law in the Netherlands that the public interest in the truth coming to light is outweighed by the public interest in everyone being able to freely turn to lawyers for assistance and advice without fearing disclosure of whatever has been entrusted to these lawyers. According to the Supreme Court, it is irrelevant where and how the entrusted information is recorded, whether this information is in the lawyer's or in the client's possession, and if that information was shared with a third party. In principle, the duty to respect confidentiality applies to any person working for the lawyer. If information falls within the legal privilege of the lawyer, that person can invoke legal privilege by proxy.
In terms of judicial review as to whether information is indeed privileged, the Supreme Court concluded that it is the lawyer who should primarily assess if information is covered by legal privilege. If the lawyer concludes that disclosing the requested information would violate his or her duty of professional secrecy, that duty prevails and should be respected. This should only be challenged (in these proceedings: by the investigators) if there is no reasonable doubt that the lawyer's assessment is incorrect. Any review by a court will be marginal; the nature of legal privilege prevents disclosure as long as a court has reasonable doubt as to whether that disclosure would be possible without disclosing what should remain confidential. Where necessary for this assessment, the court may review the nature of the information in question.
The Supreme Court also stated that the right to refuse to disclose privileged information is not limited to lawyers only: clients have a similar right, as they have a legitimate interest in refusing to disclose information where this involves disclosing legally privileged information. The significant public interest in being free to approach a lawyer without fear that what has been entrusted to the lawyer is disclosed would, according to the Supreme Court, be unacceptably impaired if the client could not assert legal privilege in this manner.
The Supreme Court decided that the client's right to refuse disclosure even applies if the lawyer has not invoked legal privilege. Ultimately, a court may be asked to assess whether the confidentiality of the information that has been untrusted to a lawyer is sufficient cause for the client not to cooperate in the disclosure of that information. In principle, just cause will exist if the disputed information cannot be disclosed without also disclosing what – in light of the confidentiality between client and lawyer – should remain confidential. In other words: a client has just cause to refuse disclosure if the information requested would pass the test of legal privilege in court if invoked by the lawyer.
Legal privilege applies barring evidence to the contrary in the law or accompanying legislative history
The Supreme Court's judgment confirms that legal privilege also applies in inquiry proceedings, and that privileged information therefore does not have to be shared with the court-appointed investigators. The Supreme Court's underlying reasoning is based on the view that neither the inquiry provisions in the Dutch Civil Code nor the accompanying legislative history provide any basis to assume that legal privilege does not, or was not intended to, apply in inquiry proceedings.
Although this judgment relates to inquiry proceedings, a similar reasoning can be assumed to apply in other areas of law. So even when there is a legal duty to disclose information, legal privilege applies regardless of that duty, barring specific statutory exceptions. In practice, this means that, except in highly exceptional circumstances, legal privilege may be asserted by lawyers and their clients.
Legal privilege applies regardless of the form it is recorded in
The Supreme Court furthermore specified that board minutes or written board resolutions can include privileged information, and including such information in these documents does not affect the privileged nature of the information. Although the Supreme Court's decision does not explicitly state as much, it may be assumed that this also applies to other types of documents, files or records that include or reflect privileged information. In general, the type of document or data carrier that contains privileged information should be irrelevant.
Whether documents contain privileged information, depends on whether the information in those documents:
(a) was, or was intended to be, received, drafted or shared by the lawyer;
(b) in relation to the matter the lawyer was working on for the client;
(c) in his or her capacity as a lawyer; and
(d) within the confidentiality existing between the client and the lawyer.
In principle, this assessment will need to be made on a case-by-case basis. In the current digital age, there is a proliferation of documents and files, especially emails and other electronic communication. Identifying and redacting privileged information in vast amounts of digital data may be a time-consuming and costly affair. In order to mitigate this as much as possible, it is advisable to separate, or at least clearly mark, privileged information. Emails and documents that include terms such as "privileged" or "legal advice" can be selected in data searches by using key word search terms. In practice, this may not be a straightforward process, as business communications routinely include a template footer stating that the communication "may contain legally privileged information". This requires a further substantive review of documents containing those terms (or more elaborate search strategies). This means that company guidelines, and adherence thereto, are essential.
Information can remain privileged even if it has been shared in correspondence
A further issue affected by the Supreme Court's decision is the effect of regulatory supervision on legal privilege. If a regulatory authority requests privileged information, the client can have just cause to refuse disclosure due to the privileged nature of that information. The Supreme Court ruled that if a client decides – in consultation with the lawyer involved – to disclose the information to the regulatory authority in question, this does not mean that the information is no longer privileged.
The Supreme Court's decision provides a basis for concluding that legal privilege is not waived when the company (voluntarily or otherwise) gives regulators, investigators or other third parties access to privileged information. By the same token, the Supreme Court's decision seems to reject the common law notion of the "waiver doctrine" and the concept of "subject matter waiver", whereby a person is deemed to have waived the right to privilege by disclosing documents to regulators or other third parties or by disclosing privileged information regarding a specific topic. Instead, the Supreme Court confirms that the question of whether legal privilege applies to documents whose disclosure has been requested, should be reviewed on a case-by-case basis and per document. Nevertheless, it remains advisable to refrain, when possible, from sharing privileged information with third parties so as not to risk removing that information from the confidentiality between the client and the lawyer.
A client can have a legitimate interest in refusing disclosure, which cannot be regarded as a refusal to cooperate with an investigation
The Supreme Court's decision confirms that a client can have a legitimate interest in refusing disclosure based on the privileged nature of certain information. This cannot be construed as a refusal to cooperate, nor a circumstance from which adverse inferences can be drawn. This correlates with a judgment by U.S. District Court Judge Lewis Kaplan in United States v. Stein,
a criminal tax case against KPMG and several of its former partners and employees. Judge Kaplan ruled that the U.S. Attorney's Office had held "the proverbial gun" to KPMG's head by implicitly threatening KPMG with indictment if it continued paying the legal fees of the former KPMG partners and employees who had invoked attorney-client privilege or had refused to cooperate with the U.S. Attorney's Office in any other way. This violated the substantive due process rights, the right to counsel and the right to a fair trial of KPMG's former partners and employees.
In line with the Supreme Court's reasoning, current and former board or staff members would have an equal legitimate interest and hence a right to refuse disclosure of privileged information in their possession or answering questions that would lead to sharing privileged information, even when the company is the client. The right of a company to approach a lawyer and seek legal advice without fear of disclosure, would be equally impaired if current or former board or staff members can be forced to provide this information. Conversely, it is worth considering whether the company or the lawyer involved can prohibit a current or former board or staff member from sharing privileged information. As the legal privilege ultimately rests with the lawyer, the lawyer's views should generally determine whether legally privileged information shared by a current or former board or staff member can be used in the proceedings or by the recipient.