Ruling puts pressure on legal bills

BUSINESSES face spiralling legal costs after a landmark ruling from Britain's highest court makes them more likely to hand general commercial work to outside law firms.

It follows last week's House of Lords decision which has limited the number of people in a business who can lay claim to an ages-old right of secrecy.

The legal advice privilege gives senior staff the right to keep confidential any soundings they take from lawyers, even when they are not expecting a lawsuit.

The decision stems from the £1bn case against the Bank of England by the liquidators for the Bank of Credit and Commerce International which collapsed 13 years ago with debts of £13bn.

To the great relief of companies and law firms, Law Lords overturned a Court of Appeal decision this spring which effectively removed the right of businesses to keep confidential communications with their lawyers in the course of ordinary commercial dealings.

But now there is a heightened commercial risk for companies after the Lords tightened the definition of a 'client' who can claim confidentiality to cover only those senior executives and in-house lawyers who directly deal with external legal teams.

Business chiefs who communicate with more junior staff on contracts or takeovers, for which senior staff have already pulled in outside legal help, could see sensitive information leaked if the company ever ends up in litigation.

Christopher Grierson, partner with City solicitors Lovells and who has been leading the action against the Bank of England, said the decision 'could be a trigger for a greater amount of outsourcing for the provision of legal services to ensure the preservation of privilege'.

Michael Frisby of solicitors Stevens & Bolton worried about the extra time and costs for businesses who prefer to outsource more work rather than seeing documents which, 'in any normal view, would be treated as confidential fall outside legal advice privilege and have to be disclosed in subsequent litigation'.

According to Dan Lavender, of City lawyers Macfarlanes, one consequence may be 'clients will be less willing to put things in writing between junior and senior executives before they go back to their [external] lawyers to reduce the risk of those internal discussions becoming public down the line'.