Another skirmish over privilege in the RBS Rights Issue Litigation

Another skirmish over privilege in the RBS Rights Issue Litigation

In the latest interim round of the RBS Rights Issue Litigation, Hildyard J has granted the claimants’ application for disclosure of interview notes taken by the bank and its external lawyers in the course of two internal investigations into alleged wrongdoing, overcoming the defendant’s objection that the notes were privileged. The court declined the defendant’s invitation to distinguish the Court of Appeal’s controversial decision in Three Rivers (No 5) by confining it narrowly to its own facts, and re-affirmed the principle that questions of privilege are for the lex fori, says Richard Edwards QC of 3 Verulam Buildings.

What are the practical implications of this case?

This case raises the following practical considerations:

  • do not assume that documents created in the course of corporate investigations (unless for the dominant purpose of litigation) will be privileged from production in subsequent legal proceedings, even when created by or for the company’s (internal or external) lawyers
  • those embarking on such investigations should take care to identify which individuals within the client organisation are authorised to provide instructions and receive advice, as only communications with those individuals and for that purpose will be protected
  • be realistic—do not expect to be able to avoid disclosure merely by designating every employee who comes into contact with the investigation team as an authorised representative of the client for these purposes
  • evidence in support of claims to withhold production of documents on the grounds of privilege will be closely scrutinised and should not be merely conclusory
  • there is no need to panic—litigation privilege remains unaffected

What was the case about?

The claimants are investors who suffered losses after taking up shares in the 2008 RBS rights issue. In the substantive proceedings the investors are claiming compensation under section 90 of the Financial Services and Markets Act 2000, essentially on the grounds that the prospectus for the rights issue was not accurate or complete.

The application before the court was for disclosure of notes taken of interviews with employees and former employees of RBS as part of two internal investigations, one in response to a US Securities and Exchange Commission subpoena and another following allegations made by former employee and ‘whistleblower’ Victor Hong.

The interviews were conducted primarily by external US lawyers instructed by RBS, but some were carried out by members of the RBS Group Secretariat (who were not lawyers, although they were said to be acting as agents for its external lawyers).

It was accepted by RBS that at no point during the interviews was legal advice sought or given— the interviews were part of an information gathering process.

RBS nevertheless resisted the application on the grounds that:

  • the interview notes were protected by legal advice privilege, alternatively
  • apart from those created by members of the Group Secretariat, the notes were lawyers’ working papers, alternatively
  • even if the notes were not privileged under English law, the court should apply US law, according to which privilege would attach

Legal advice privilege—applying Three Rivers (No 5)

In Three Rivers (No 5), the claimants were the liquidators and creditors of BCCI who sued the Bank of England for misfeasance in public office in connection with alleged failures in its supervision of BCCI before its collapse. They sought disclosure of numerous documents which had been produced for a private non-statutory inquiry into the supervision of BCCI conducted by Bingham LJ, as he then was. A special unit known as the Bingham Inquiry Unit had been set up within the bank to deal with the inquiry and to seek and receive advice from the bank’s solicitors, Freshfields. The documents in issue mostly comprised documents created by non-BIU employees of the bank in connection with the inquiry, which had been submitted to the BIU to enable Freshfields to advise on them as the BIU thought fit. Some of these documents had been passed on to Freshfields and others were not. There were also some direct communications between non-BIU employees and Freshfields.

As the inquiry was not adversarial the bank could not claim litigation privilege but instead contended that the documents had been created for the dominant purpose of instructing the bank’s lawyers and obtaining their advice, and were therefore protected by legal advice privilege. At first instance, Tomlinson J agreed but his judgment was reversed by the Court of Appeal, essentially on the ground that the documents in issue were not communications between lawyer and client, and that legal advice privilege did not attach to preparatory materials, even if created by the client’s employees for the dominant purpose of giving instructions to the bank’s lawyers. Crucially, the court accepted on the facts that employees of the bank who were not members of the BIU did not represent ‘the client’ for this purpose and their position was accordingly no different to that of a complete outsider whose communications either with the BIU or directly with Freshfields would not be covered by legal advice privilege.

The decision in Three Rivers (No 5) has been controversial with some commentators regretting the uncertainty introduced by the need to distinguish between individuals within the client organisation who are to be regarded as ‘the client’ for these purposes, and those falling outside that category whose communications therefore cannot be withheld from inspection by the opposing party if they subsequently become relevant to an issue in proceedings.Three Rivers (No 6) [2004] UKHL 48, [2005] 1 AC 610

In a further episode of the BCCI litigation, Three Rivers (No 6), it was argued that the sharp distinction drawn between legal advice privilege and litigation privilege in Three Rivers (No 5) was unprincipled and should be discarded, but the House of Lords declined to rule on the point. Three Rivers (No 5) therefore remains good law.

In spite of the obvious parallels, RBS argued that Three Rivers (No 5) could be distinguished because it only concerned what it called ‘purely internal’ documents—that is documents passing between company employees—whereas here the interview notes had in many cases been taken by the lawyers themselves. Perhaps emboldened by the criticism it has attracted in some quarters, RBS submitted that Three Rivers (No 5) should be confined to its own somewhat unusual facts, with particular reference to the existence of a dedicated unit within the client organisation with specific responsibility for dealing with the lawyers. RBS cited the decision of the Singapore Court of Appeal in Skandanavia Enskilda Banken AB (Publ) v Asia Pacific Breweries (Singapore) Pte Ltd [2007] 2 SLR 367 in which the court stated:

In our view, Three Rivers (No 5) should be read in the context of the court’s finding that the BIU (and no one else) was authorised to communicate with the bank's solicitors.

Hildyard J however held that the ratio of Three Rivers (No 5) could not be so confined:

  • the client for the purposes of privilege consists only of those employees authorised to seek and receive legal advice from the lawyer (whether or not an internal committee has been constituted for that purpose), and
  • legal advice privilege does not extend to information provided by employees and ex-employees to or for the purpose of being placed before a lawyer

The decision confirms the narrow approach taken to the definition of the ‘client’ that was latent in Three Rivers (No 5). As pointed out by Chief Master Marsh in Astex Therapeutics v Astrazeneca (cited in para 90 of Hildyard J’s judgment), in one sense this approach is surprising because it might be thought that the involvement of lawyers in an information-gathering exercise of this kind ‘clothes the review in privilege’.

On the other hand, legal advice privilege is not the same thing as litigation privilege; it has a different rationale and it has long been recognised as having a ‘very limited character’ (Wheeler v Le Marchant (1881) 17 Ch D 675). The need to identify ‘the client’ has no doubt introduced a degree of uncertainty but it is not obvious that the test is any more uncertain than the ‘dominant purpose’ test applied by Tomlinson J and rejected by the Court of Appeal. From a policy perspective, there is a balance to be struck between the protection of confidential communications with a party’s lawyers, and the public interest in ensuring that all relevant and probative evidence is made available to the court. The problem with the ‘dominant purpose’ test is that it makes it all too easy for corporations to throw the cloak of privilege over the fruits of an internal investigation, merely by asserting that the dominant purpose of the investigation was not to discover the facts about what had happened, but to obtain legal advice—a distinction which in many instances may appear contrived and self-serving to outsiders who have an interest in getting to the truth. Overturning Three Rivers (No 5) may arguably encourage the cosmetic overlawyering of investigations, and do little to dispel the perception of a “cover-up culture” within the corporate world.

Legal advice privilege—lawyers' working papers

RBS argued in the alternative that the interview notes were privileged as lawyers’ working papers (although of course this alternative claim did not apply to those notes made by members of the RBS Group Secretariat).

It is well established that lawyers’ working papers are privileged under the legal professional privilege doctrine, but (as pointed out at para 99 of the judgment) the doctrine has received very little principled discussion. The decision provides important clarification of its ambit.Ventouris v Mountain [1991] 1 WLR 607Imerman v Tchenguiz [2009] EWHC 2902 (QB)

Having reviewed the authorities—notably Ventouris v Mountain and Imerman v Tchenguiz—Hildyard J determined that the relevant test was whether the documents ‘give a clue as to the trend of advice being given to the client by its lawyer’ (para 107).

On the facts of the case, the court accepted the claimants’ arguments and held that neither of the two bases on which the interview notes were said to be lawyers’ working papers was sufficient:

  • RBS argued that the interview notes were privileged on the basis that they revealed the lawyers’ ‘train of inquiry’—this was insufficient. The court agreed with the claimants that a principled distinction exists between a document that reveals a lawyer’s ‘train of inquiry’ and a document which gives a clue as to the lawyer’s advice. It was only where a clue was given as to the advice that the lawyers’ working papers doctrine would be relevant
  • RBS also argued that because the notes were not verbatim transcripts and therefore that their creation necessarily involved a degree of selection by the lawyers, such input being sufficient to bring the notes within the doctrine—the court rejected this analysis, reasoning that:
    • RBS had not disclosed the extent of the selection, and
    • in any event, it had not produced evidence that the fact of this selection would ‘give a clue’ as to the advice being offered

The importance of full evidence in privilege applications

The judgment also serves as a reminder of the importance for a party asserting privilege to put as much evidence as possible before the court to justify that claim.West London Pipeline v Total [2008] EWHC 1729 (Comm)

The court emphasised the guidance of Beatson J (as he then was) in West London Pipeline v Total, stressing in particular that:

  • a claim for privilege is unusual in that the party claiming privilege and their legal advisers are judges in their own cause
  • for that reason, the court must be particularly careful to consider the basis on which the claim for privilege is made
  • evidence filed in support of a claim to privilege should be as specific as possible without making disclosure of the very matters that the claim for privilege is designed to protect

It followed that a statement that the notes had been reviewed by solicitors and counsel was not sufficient—the court was obliged to itself scrutinise the basis on which that statement is made.

The judge noted the limited evidence that RBS had adduced in support of its claim to privilege. In particular the judge emphasised (at para 125) that in relation to its lawyers’ working papers claim RBS’s evidence was conclusory in nature, and failed to describe (even in general terms) the sort of legal input which it was said had been applied in preparing the notes.

Choice of law in privilege

The decision is also significant because it is one of the first cases to fully analyse the English choice of law rules for privilege.

In what was described (at para 132) as a ‘bold submission’, RBS sought to argue in the alternative that the issue of privilege should be determined by US law. If successful this would have been a convenient way for RBS to resist disclosure, since it appears that the interview notes would have been privileged under US law, applying the decision of the Supreme Court in Upjohn Co v United States (1981) 449 US 383.

While (as the judge accepted at para 132) it is generally thought to be well settled that privilege is a matter of the lex fori, RBS here proposed that the court adopt a new choice of law rule. This was essentially a hybrid rule—RBS proposed that the English courts should apply the law of the jurisdiction with which the engagement or instructions, pursuant to which the documents came into existence or the communications arose, are most closely connected, save where to do so would be contrary to English public policy.

The court rejected this submission. Having comprehensively reviewed the authorities, the Judge held (at para 169) that the approach of the English court is to apply the lex fori to issues of privilege, and that this point had been settled since the mid-nineteenth century.

The court emphasised that the law of privilege—the balance that is struck between the competing imperatives to place all of the relevant evidence before the court, and to protect a party’s right to seek legal advice—was ultimately a public policy decision to be taken by the forum.

The court did however accept (at paras 182–183) RBS’s submission that the court had a discretion to refuse disclosure or inspection in certain circumstances, and that foreign law considerations might influence the exercise of that discretion in cases giving rise to ‘some exceptional concern’. On the facts, this was not such a case.The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch)

For the full findings in the instant application and a more detailed background to the matter, see the full judgment (which can be accessed through the orange speech bubble to the right of this text).

The final word?

On 12 December granted a ‘leapfrog’ certificate allowing the defendant to appeal directly to the Supreme Court. It remains to be seen whether or not the Supreme Court regards this as a suitable case in which to revisit Three Rivers (No 5).

Further reading

For further guidance on legal advice privilege, see Practice Note: Privilege—legal professional privilege (LPP).

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