Privilege: PAG v RBS revisited

Written on 14 Jan 2016

The on-going litigation between Property Alliance Group and RBS (PAG v RBS) has already provided a number of important judicial decisions in relation to privilege. We have previously discussed Mr Justice Birss’s judgment in July (the July Judgment), which concerned: the application of without prejudice privilege to regulatory enforcement proceedings, how that privilege may be lost, and extent of privilege over documents relating to internal investigations (see here).

Since then, the parties have been back to court on related issues arising out of that same disclosure exercise and applications by both parties to amend their pleadings. The three judgments coming out of those hearings raise further important issues on other aspects of privilege.

Role of lawyers sufficiently ‘legal’ to allow privilege to be claimed

Two of the classes of documents that PAG was seeking inspection of were: memoranda which informed and updated the bank on developments relating to various regulatory investigations, and summaries of meetings between the bank and its lawyers. The bank sought to withhold inspection on the basis that those documents, which had all been prepared by its external lawyers and sent to it, were subject to legal advice privilege.

Legal advice privilege applies to confidential communications between lawyers and their clients for the purposes of giving or receiving legal advice. This will extend not only to advice on the law, but also on what should be done commercially in the relevant legal context. The courts have also acknowledged that this extends not just to communications directly giving or seeking legal advice, but to the “continuum of communications” which is necessary to keep both parties informed.

In the July Judgment, Birss J had questioned the role for which the bank’s lawyers had been retained. The bank had originally stated that the lawyers’ role was limited to obtaining instructions and providing legal advice. Birss J questioned whether it extended beyond that, to functions which should not attract legal advice privilege (as PAG contended). In particular, he questioned whether factual summaries which did not contain legal advice should necessarily attract privilege. In order to determine the issue, Birss J ordered that certain documents be provided to a second judge, Mr Justice Snowden, who could then reach a decision on whether legal advice privilege applied.

After reviewing the documents, Snowden J held that they were all covered by privilege. He accepted that the documents included factual updates, rather than just legal advice or explicit requests for instructions. Nevertheless, he was satisfied that the bank’s external lawyers had been engaged in a ‘relevant legal context’. Dealing with and coordinating the various regulatory investigations that the bank was involved in was a “serious and complex matter”, on which it “naturally wished to have the advice and assistance of specialist lawyers”.  The documents were part of the continuum of communications between the bank and its lawyers necessary for that engagement, so should attract legal advice privilege.

Litigation privilege not available where witness misled as to purpose of discussions

Birss J also gave a ruling on an unusual point relating to an attempt to claim privilege over materials that were obtained through what was, effectively, deception.

The materials in question were audio recordings and transcripts of meetings between PAG’s managing director and former employees of RBS. The former employees had understood that the purpose of those meetings was to discuss progressing their own business relationships with PAG. In fact, PAG’s managing director had arranged the meetings in order to obtain evidence to support PAG’s claims against RBS. He had taken audio recordings of those meetings without the former-RBS employees’ knowledge.

The recordings and transcripts came to light through a privileged email that PAG inadvertently disclosed to RBS. When RBS subsequently sought inspection of the materials, PAG claimed litigation privilege over the materials themselves and the underlying email.

The question for the court was whether the dominant purpose for the creation of the recordings and transcripts was to aid the conduct of litigation. In this case, the purpose of the meetings from the ex-RBS employees’ point of view was fundamentally different from the purpose of the meetings from PAG’s managing director’s point of view.

In these circumstances, Birss J held that the critical point was that the ex-RBS employees had been deceived. Because of this, he held that the appropriate way to assess the dominant purpose of the meetings was from the point of view of the ex-RBS employees. On that basis, the materials were not privileged.

Despite this, the judge was critical of the way that RBS’s solicitors had acted when they received the underlying email (which both parties agreed was privileged). RBS had made an application under CPR rule 31.20 to use a privileged document that had been inadvertently disclosed (the email), but only after they had inspected the email and taken other steps, such as contacting the two ex-employees. The judge criticised RBS’s legal team for using the materials without permission, and indicated that he would impose a sanction in relation to costs for this. As a practice point, the correct thing to do would have been to alert PAG as soon as the inadvertent disclosure was discovered and, if RBS considered that it may wish to do anything with those materials, apply to the court for permission at the earliest opportunity (and without doing anything with those materials in the meantime).

Reclaiming privilege

As we discussed in our July article, two of the most important aspects of the July Judgment related to RBS’s attempts to claim privilege over communications with the regulator (the Financial Services Authority, as it then was), which were purported to have been made on a ‘without prejudice’ basis.

Birss J agreed that the without prejudice rule (that communications between parties to litigation for the purposes of exploring settlement cannot be used in court) could in principle be extended beyond civil litigation, to apply to communications with a regulator.  This would depend on the particular regulatory regime and circumstances; in this case, it would apply to the communications with the FSA. Nevertheless, he held that RBS had waived this privilege by relying (so the judge thought) in its Defence on the outcome of the regulatory enforcement. The judge held that this amounted to a waiver by the bank of its privilege over the content of the discussions which led to that regulatory decision.  

In an attempt to ‘reclaim’ this privilege, RBS applied to amend its pleadings to omit the reference to the outcome of the regulatory enforcement. This application was unsuccessful, largely because PAG had also applied to amend its Particulars of Claim, so the right approach would be to allow this first. RBS would then need to prepare an amended Defence to address PAG’s amended Particulars of Claim. However, provided that RBS’s amended Defence omitted the ‘offending’ reference to regulatory enforcement, Birss J held that it would be entitled to reclaim the privilege it had been deemed to have waived.

PAG had argued that it was too late for it now to be able to reclaim the privilege it had been held to have waived over those communications. The judge did not accept that argument. He held that, although RBS had raised its case during interlocutory hearings, what had taken place by that point had been concerned not with the merits of each party’s case, but simply on procedural matters.

Had the arguments during interlocutory hearings developed differently, RBS may have found it too late to be able to reclaim the privilege it had been deemed to have waived. Parties should still, therefore, be very wary about including any reference to the outcome of regulatory proceedings, as this could lead to privilege being waived permanently. Nevertheless, if proceedings have not advanced too far, it may well be possible to amend pleadings to remedy the situation.

Practice points

The PAG v RBS litigation has raised a number of important points relating to privilege, highlighting the diversity of challenges faced by lawyers, whether in private practice or in-house, when it comes to privilege.

The following practice points arise from the decisions to date in this case:

  • Define the role of lawyers. Particularly when it comes to internal investigations, it can be very difficult to know for certain whether the role of lawyers (in-house or external) will allow legal advice privilege to be claimed over certain classes of document. As another recent case, Energy Solutions v Nuclear Decommissioning Agency [2015] EWHC 2441 (TCC), showed, privilege can be claimed in some cases where lawyers are performing roles more usually performed by commercial teams, where there is a particular reason why lawyers are needed to perform that task. If so, this should be stated at the outset, along with a clear explanation of the scope of the lawyers’ role. It should be borne in mind, however, that a court may ultimately reach a different view.
  • Dealings with regulators may be privileged. Communications with regulators can in some circumstances attract without prejudice privilege, but this will depend on the particular regulatory regime in place. It cannot be assumed that all leniency-type communications will be protected from disclosure.
  • Be wary of references to regulatory proceedings. If communications with regulators do attract privilege, this can be easily lost by relying (or being deemed to be relying) on the outcome of those regulatory proceedings as part of a party’s case. It may be difficult to avoid such references where the other side’s case brings those proceedings into issue (as RBS’s attempts to amend its pleadings demonstrate). Cynical litigants may look to exploit this difficulty with tactical references to regulatory proceedings.
  • Privilege lost may be regained. If privilege has been deemed to have been waived through pleadings or other material deployed in litigation (such as witness statements), it may be possible to regain that privilege by amending those materials to omit the offending reference(s). Whether this is possible will depend on what has happened in the litigation, and particularly any court hearings, to that point.
  • Be clear as to the purpose of meetings with witnesses. If meetings or other communications with third parties are sought for the purposes of aiding litigation, this should be explained to those third parties from the outset. If not, it will be difficult to claim litigation privilege over any documents arising, which might lead to unhelpful documents having to be disclosed to the other side.
  • Do not use inadvertently disclosed materials without permission. Where a litigant discovers that another party has inadvertently disclosed privileged materials, it is expected to bring this to that party’s attention straight away. It should not do anything with that material unless and until it has obtained permission from the court or the other party to do so. A litigant found to have acted inappropriately is likely to be penalised in costs, at the least.