Easy come, easy go? legal privilege in internal and regulatory investigations

Published on 20th Jul 2015

Legal privilege can be deployed to powerful effect, allowing
parties to withhold documents from opponents in litigation or from regulators.  Unsurprisingly therefore, assertions of
privilege are often the subject of challenge. 
One of the key issues which will determine whether a document is
privileged is the purpose for which it was created.  

The High Court has recently had to consider two of the more
difficult, and increasingly common, categories of document which are being

  • documents created for or by internal investigations; and
  • documents created as a part of settlement discussions with regulators. 

The Mr Justice Birss’s judgment brings useful clarity on
these issues, but will cause concern for businesses, particularly in regulated

discussions with regulators may be privileged

If your organisation finds itself subject to regulatory
attention, you may want to cooperate with the regulator and, if appropriate,
engage in settlement discussions. 
However, you would probably be less inclined to correspond frankly if
that correspondence might later be used against you by an opponent in
litigation.  This is precisely the
position that RBS may find itself in as a result of a recent High Court

In Property Alliance
Group v The Royal Bank of Scotland
PAG’s claims include allegations against RBS of misconduct relating to the
sterling LIBOR rate.  RBS had been the
subject of regulatory enforcement by the FSA (as it then was) in relation to
Swiss Franc and Japanese Yen LIBOR rates, but not the sterling LIBOR rate.  The FSA issued RBS with a fine of £87.5
million following settlement discussions.

RBS subsequently sought to withhold from PAG certain
documents which formed part of the settlement discussions with the FSA.  RBS claimed that those documents were subject
to without prejudice privilege, in a similar manner to settlement discussions
between opponents in civil litigation. 
PAG argued that without prejudice privilege did not apply to this type
of regulatory settlement procedure.

Birss J disagreed with PAG on this point.  It held that this regulatory settlement
regime was intended to be conducted on a without prejudice basis (noting that
correspondence exchanged during the process was typically headed as
“without prejudice”).  The judge
did note that there were certain factors which pointed against this conclusion,
and it does not necessarily follow that all regulatory settlement procedures
will similarly attract without prejudice privilege.  Nevertheless, the confirmation that this can
apply will be welcomed by any organisation which has to deal with regulators.

Waiving privilege:
Easier than you might think

Although the judge was prepared to recognise that the
settlement discussions with the FSA could be protected by privilege, he found
that that privilege had subsequently been waived.

In one of the more controversial aspects of the judgment,
the judge found that RBS had waived its privilege with a simple statement in
its defence that there had been no regulatory findings against it in relation
to sterling LIBOR.  The judge made this
finding despite the issue of regulatory findings being raised initially by

The judge viewed RBS’s statement as a positive reliance on
the published outcome of a settlement process, which was arrived at as a result
of discussions to which PAG were not privy. 
In order to avoid the possibility that the final outcome might be
misleading (in a way that would benefit RBS), the judge held that PAG must be
able to look behind the outcome of the settlement process.

This part of the judgment will be of great concern to
regulated businesses in particular.  But
with increasing regulatory scrutiny from non-sector regulators like the Health
& Safety Executive and the Competition and Market Authority all
organisations should take note of this.

Legal advice
privilege and internal investigations

RBS also sought to resist disclosure of other categories of
documents on the basis of legal advice privilege and litigation privilege.

Legal advice privilege was claimed over documents relating
to a sub-unit of RBS which had been set up specifically in relation to various
investigations into LIBOR (the Executive Steering Group, or “ESG“).  Those documents included memos prepared by
RBS’s external legal advisers.  RBS,
initially at least, sought to characterise the ESG’s role as being confined to
seeking and receiving legal advice. 
However, the judge considered that its role was somewhat wider, and
included reporting back to the business on factual investigations. 

As a result, the judge was not prepared to accept that
privilege necessarily applied to all documents relating to the ESG.  Instead, Birss J decided that a judge
(whether him or another judge) would subsequently consider each document
separately.  This would include the
documents prepared by RBS’s external lawyers, whose role he considered included
more than just giving legal advice.  For
example, the judge noted that the lawyers had been involved in assisting
factual investigations.

The application of legal advice privilege (and litigation
privilege) to internal investigations can be very problematic.  Often the distinction between factual and
legal parts of investigations and findings is a fine one.  Investigations may also be commenced, and
findings reported, for more than one reason. 
As this case highlights, the mere fact that external lawyers are involved
is not sufficient to ensure that privilege will apply to materials created for
or by that investigation.

Practice points

  • If you are engaging in settlement discussions with a regulator, this might attract without prejudice privilege, but this will not necessarily be the case – look carefully at the terms of reference for that process and if in doubt
    consult an expert.
  • Be extremely cautious about making any reference to those settlement discussions in litigation or correspondence with potential opponents.  Consider carefully whether you need to include any mention at all of the process.
  • Do not assume that all materials created for or by an internal investigation will be privileged, even if created by external lawyers.  Establish clearly at the outset the purpose and remit of an
    investigation.  If you consider that
    litigation is in prospect or if specific legal advice is sought, make this

[1] [2015]
EWHC 1557

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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