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Waiver of legal privilege and 'without prejudice' protection in regulatory enquiries

Duncan Black
22/06/2015
The recent judgement of Birss J in Property Alliance Group Ltd v Royal Bank of Scotland Plc [2015] EWHC 1557 (Ch) raises important issues for firms wishing to withhold production of documents prepared The recent judgement of Birss J in Property Alliance Group Ltd v Royal Bank of Scotland Plc [2015] EWHC 1557 (Ch) raises important issues for firms wishing to withhold production of documents prepared in the course of regulatory investigations or in negotiating with the regulator.

Background

Property Alliance Group ("PAG") sued RBS for alleged misrepresentations about LIBOR in connection with interest rate swaps sold to it by RBS.

The recent judgement follows an attempt by RBS to assert legal advice privilege over documents created by and for an 'Executive Steering Group' ("ESG"). The ESG comprised senior RBS employees and its job was to oversee and coordinate RBS's response to the various investigations into LIBOR misconduct. The bank's external solicitors played an important role in the activities of the ESG and the solicitors attended the meetings, provided it with legal advice and acted as a secretariat.

Legal advice privilege claim

RBS's privilege claim  covered documents passing between RBS and its internal and external lawyers including: (i) advice notes on regulatory investigations; (ii) memoranda and summaries advising on periodic progress of the reviews and findings into RBS's setting of LIBOR; (iii) memoranda advising on the production of documents and information to certain regulators; (iv) documents advising in relation to meetings with certain regulators and (v) memoranda and advice notes prepared on (a) the outcome of investigations and findings; (b) discussions with regulators and (c) the implications for actual and contemplated civil proceedings brought against RBS.   PAG grew suspicious of RBS's privilege claims and in particular queried whether the sole function of ESG was to receive legal advice. The judge thought it likely that ESG's purpose might additionally include keeping RBS informed about the outcome of the LIBOR investigations which it was overseeing. The court had reviewed similar privilege claims of RBS in earlier hearings and, on this occasion, ordered that the court should inspect the controversial documents to see if RBS's privilege claims were valid.

This judgement is a reminder that to rely on the privilege objection, a firm should be able to provide sufficient information about the role of the nature of the documents over which it asserts privilege so as not to provoke suspicions. Although the privilege claims were detailed, there was a perceived inconsistency, and a lack of clarity about the role of the ESG committee to which they related. Engaging external legal counsel to participate in or provide administrative support to a regulatory investigation will not necessarily shelter the documents from inspection under a privilege objection.

Without prejudice correspondence with the regulator

The court considered whether communications between RBS and the FSA leading to the FSA's Final Notice imposing a penalty on RBS were 'without prejudice' and that RBS could, in theory, withhold these. It was noted that previous versions of the relevant portion of the FSA Handbook referred to 'without prejudice' communications, but not since 2007. The judge concluded that settlement negotiations about a penalty were a form of 'without prejudice' communication in all but name.

However, in this instance, RBS could not withhold these because it had positively relied upon the absence of any regulatory sanction against RBS in relation to GBP LIBOR as part of its defence in the civil litigation. RBS having put those matters 'in issue' in the litigation, it could not continue to claim privilege in those documents relevant to its defence.

Waiver of privilege in 'legal advice' documents

A similar fate befell six 'privileged' documents withheld by RBS. Legal advice, and litigation, privilege was claimed in relation to six documents which RBS had shown to regulators on a confidential basis. In theory, that privilege could be maintained, but RBS had lost the right to keep it by relying on the matters connected to their existence as part of their litigation defence.

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