Professional Testimonial Privileges

III Comparative Law &, Economics Perspectives (S. 54-55)

In this part Law &, Economics will be used to evaluate three issues in the application of the corporate lawyer-client privilege in the researched jurisdictions. First, the control of the privilege and the implications of the control on the behaviour of the firm is discussed, given different ownership and control regimes. In section 2, I analyze the control group test in comparison with other rules that determine who may represent the firm when communicating with the lawyer. Finally, I discuss involuntary waiver in the context of the economic analysis of accidents.

1. The Separation of Ownership and Control of the Privilege

We have observed that in all of the surveyed countries, the privilege is owned by the client, which means it belongs to the corporation and not to the individual agents of the corporate entity. In this section I shall analyze the implication of this fact on the behavior of firms in the surveyed jurisdictions, given that there are underlying systemic differences, as mentioned in the introductory note. Subsection 1.1 outlines the functions performed by lawyers in the corporate lawyer-client context.

In subsection 1.2 I focus on the corporate lawyer`s most central role: providing legal advice regarding contemplated actions. The existing model for individual lawyer-client privilege is then extended to the corporate setting. As will be shown, the most significant implication is the distortion of the alignment of interests between the principal and the agent in the firm. In subsection 1.3 the implications of these findings are exemplified in the context of compliance with competition laws in the US and Europe.

1.1 Functions Performed by Lawyers

"Legal services" is a general term that is used (and perhaps misused) as an umbrella term for the various functions that lawyers perform. Some of the functions are traditional. Some are relatively new. Not all functions are voluntarily provided by legal professionals - some are imposed on them. The functions lawyers perform can be broken down into four categories. The first two categories are legal advice (before taking actions and after them) and gate-keeping. Two additional functions that lawyers perform will not be discussed here: the provision of business advice207 and negotiating on behalf of clients.

The latter two categories are not directly linked to the legal aspect of the lawyer's role and therefore are normally not privileged. The first category is "legal advice". Economic analysis has observed that legal advising itself should be broken down into two sub-categories: (1) Advice about contemplated acts (ex-ante advice), and (2) Litigation advice about acts already committed (ex-post advice). The provision of the first type of legal advice is part and parcel of the decision making process of a client that wishes to take into consideration the cost of expected sanctions in the event of choosing illegal or actionable avenues of action. This legal advice pertains to the legality or illegality of optional actions, the magnitude of the sanction for illegal actions, and the probability of enforcement (which is comprised of the enforcer's detection efforts, the sanctioning mechanism etc.). This type of legal advice is given ex-ante to the choice of the action and thus has an influence on the client`s chosen action.

The second type of legal advice occurs ex-post the action, after enforcement procedures have materialized (regardless of whether the action chosen was legal or not). At this stage the role of the legal advice, the litigation advice, is to assist the client in presenting his case to the court in the optimal way, that is, the way which will minimize the probability of being found liable and decrease the expected magnitude of a sanction. This advice concerns the strategy of the client's defence claims in court, which evidence should be presented to the court and which should not be offered (as far as the client is able to control this factor), how to respond to evidence and strategies of the opposing party, etc.