The limits of privilege in corporate investigations

Published 8 febrero 2017

The ongoing RBS Rights Issue Litigation has produced a recent finding in relation to the scope of legal advice privilege, which will require corporates and D&Os to reassess how they carry out internal investigations.

Background

The RBS Rights Issue Litigation is the collective name for numerous claims brought against the ailing bank by former and current shareholders who purchased shares in the £12bn rights issue just months prior to the bank's £45bn Government bail out in 2008.

In the course of the litigation, RBS had resisted the disclosure and inspection of transcripts, notes or other records of employee interviews on the basis that they were subject to legal advice privilege or alternatively that these interview notes were lawyers' privileged working papers.

Legal advice privilege

The purpose of legal advice privilege is to enable a client seeking advice to place unrestricted confidence in their lawyer. In order for it to apply, the communication must be: (i) confidential, (ii) between a client and the client's lawyer, and (iii) come into existence for the purpose of giving or receiving legal advice.

RBS argued that as the interview notes recorded a communication between a lawyer and a person authorised by RBS to give instructions to its lawyers, those communications were privileged. It submitted that any communication by an employee who is authorised to communicate with a legal adviser for the purpose of their employer seeking legal advice is privileged on the basis that the employee should be treated as if he/she were part or an emanation of the client. The bank also sought to argue that US law should apply in any event as that was the jurisdiction in which the instructions to conduct the interviews were "most closely connected".

The Claimants argued that the communication of factual information by a company employee to the company's legal adviser was not privileged as it was not a communication between a client and its lawyer for the purpose of the lawyer providing legal advice to the client. The question of whether the employee was authorised by the company to communicate with its lawyer was irrelevant.

The Claimants relied on the leading authority for legal advice privilege, Three Rivers (No.5), in which the Court of Appeal had concluded that, in a corporate context, information gathered from an employee is no different from information obtained from third parties, even if the information is collected by or in order to be shown to a solicitor to enable fully informed advice to be given to that solicitor's client.

The Court's finding

The Court did not accept RBS's attempt to classify its employees or former employees as "the client" or "a qualifying emanation of the client" rather than third parties. Further, it confirmed that legal advice privilege did not extend to information provided by employees and ex-employees to or for the purpose of being placed before a lawyer.

The Court therefore upheld the Three Rivers decision and RBS's claim to the protection of legal advice privilege for the interview notes failed, as did its claim for privilege to extend to its lawyers' working papers. It also confirmed that English law would apply to this matter, and it was therefore irrelevant that the documents would, under US law, have been regarded as privileged.

Commentary

The decision in the RBS Rights Issue Litigation will have an impact on the gathering and collecting of information for all corporates involved in cross-border investigations and litigation.

D&Os have to be aware that when they are being interviewed for the purposes of any internal investigations, purely factual verbatim accounts taken by the corporate entity's lawyers may not be privileged. It will be critical to clearly identify the "client" in the course of these investigatory interviews.

Notably, RBS could not argue that the documents were subject to litigation privilege, as it was accepted that the documents in question had been prepared before litigation was contemplated.

Accordingly, corporates must give careful thought at the outset of an investigative process as to how information is gathered, the manner in which that information is recorded and by whom. Being in a position to draw the fine line between privileged and non-privileged communications will be critical in the course of regulatory investigations and criminal matters, specifically bribery matters where the SFO will expect full cooperation in the course of its investigations.