What it means
The idea is that people need to speak frankly to their advisers to get good advice. If everything said could later be demanded by the other side in a dispute, clients would hold back and the quality of advice would suffer.
Attorney-client privilege is the most common form. In general, it covers confidential communications between a client and a lawyer made for the purpose of getting or giving legal advice.
Privilege belongs to the client, not the lawyer, so only the client can waive it. It can be lost by accident, for example by forwarding a lawyer's email to people outside the group that needs to know, or by discussing the advice in public.
Not everything connected with a lawyer is protected. Facts exist independently of the lawyer, so a company cannot make a document private merely by copying a lawyer into an email, and business advice from a lawyer acting as a commercial manager may not count.
Rules differ between countries and between types of adviser. Some systems give limited protection to communications with accountants or tax advisers, while others give none, so finance teams should check the position in each place where they operate before assuming a document is protected.
In practice, companies mark sensitive legal communications, limit who receives them, and keep them separate from routine business files so that they are easy to withhold if documents are demanded. In investigations, such as a review of suspected fraud, running the work through external counsel can help to keep the findings protected, though a court will look at the real purpose of the work.
In practice
Real-world examples.
Example
A finance director emails the company's lawyer asking whether a planned supplier contract breaks competition law. The lawyer replies with a written opinion. Both messages are kept in a restricted folder and marked as privileged. The finance team shares only the conclusion with the board, not the full opinion.
Example
A start-up founder forwards her lawyer's advice on a funding dispute to a friend who is not involved in the company. By sharing it outside the circle that needs it, she may have waived the privilege. The other side in the dispute could later argue that they are entitled to see the advice, and a court might agree. Her lawyer advises her to stop sharing it and to document who has already seen it.
Example
A manufacturer hires outside counsel to investigate allegations of bribery by an overseas agent. The counsel directs accountants to review payments and reports findings back in writing. The company hopes that the report is protected, and keeps its circulation to a small group. The auditors are told only what they need to know, and the board receives an oral briefing instead of copies.
Case study
Seen in the real world.
Brightwater Foods is an illustrative, fictional company that faced a claim from a former distributor. The chief financial officer asked the legal team for advice on possible exposure and received a candid assessment by email.
Without thinking, she forwarded the email to the sales director, who in turn copied it to two regional managers and an outside consultant. When the dispute reached court, the other party asked for the email and argued that the privilege had been lost by wide sharing.
In this illustrative story the company spent $150,000 in legal costs fighting over whether the email was protected, and the judge ruled that the privilege had been waived for the forwarded copies. The company introduced a rule that legal advice would be shared only through the legal department, to a named list of recipients.
Watch out
Common mistakes.
- Copying a lawyer on every email and assuming it makes the message private, when the main purpose of the message must be legal advice.
- Forwarding privileged advice to people who do not need it, which can waive the protection and make the advice available to the other side in a dispute.
- Assuming accountants have the same protection as lawyers, when many places give limited or no protection to accountancy advice.
Questions
People also ask.
Who owns the privilege?
The client owns it, and only the client can choose to waive it, although the lawyer must protect it unless told otherwise, and in a company the right to waive usually sits with senior management or the board.
Does privilege last forever?
In many systems it continues after the case is over and even after the client's death, but exceptions apply, such as when advice is used to further a crime or fraud, and the details differ between countries.
Does privilege apply to in-house lawyers?
In many places it does for legal advice, but the rules differ, so the position should be checked in each country.
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