Protecting privilege in internal investigations

Written on 6 Apr 2017

Internal investigations are more prevalent, and necessary, than ever as a means of managing the increased litigation and regulatory risks faced by companies, often globally. Companies conducting investigations should, however, take note of the recent English High Court decisions which confirm that legal advice privilege will not protect communications between a company’s employees and its lawyers, unless those employees are authorised to instruct the lawyers.

What were the issues in these cases?

In Re the RBS Rights Issue Litigation, the Court rejected RBS’s claim to legal advice privilege in the attendance notes of interviews of 124 employees and ex-employees created in the course of two internal investigations. Hildyard J also rejected the bank’s alternative argument that a distinct “lawyers’ working papers” privilege applied to the interview notes prepared by in-house and external lawyers.

Chief Master Marsh addressed similar issues in a decision handed down just one month earlier in Astex Therapeutics Limited v AstraZeneca AB. In that case, concerned that the defendant was wrongfully withholding inspection of interview notes and other documents, the Court took the exceptional step of ordering the defendant to provide a witness statement listing each document it claimed privilege in and the basis for each claim.

These decisions are good news for regulators or litigants seeking to test a party’s privilege assertions. However, the limited scope of legal advice privilege can present real difficulties for companies gathering information from their own employees in order to seek legal advice.

It is clear that companies cannot work on the basis that simply involving in-house or external lawyers will “clothe the investigation in privilege”.  Instead, companies need to structure their internal investigations to maximise the protection available, actively manage the risks involved, but also recognise that ultimately there is no guarantee that internal investigation materials will be covered by privilege.

Legal advice privilege

In RBS the bank accepted that litigation privilege (which protects confidential communications between lawyer, client and third parties for the dominant purpose of litigation) did not apply on the facts. RBS instead sought to establish that legal advice privilege (which covers confidential communications between lawyer and client for the purpose of giving or receiving legal advice) protected the interview notes from disclosure.

In order to succeed, RBS needed to distinguish its case from the widely criticised decision of the Court of Appeal in Three Rivers District Council and others v Governor and Company of the Bank of England (No 5), which narrowly defined the “client” for the purposes of privilege determinations. RBS argued that because its employees were authorised to communicate with the bank’s lawyers, the interview notes evidencing those communications were protected by legal advice privilege.

The Court disagreed. Although the employees were authorised to communicate with the bank’s lawyers, the employees were not authorised to seek or receive legal advice, and were therefore not “clients” but “third parties”. The critical question was not whether a particular communication consisted of instructions or information, but whether the employee was authorised to give instructions to the lawyers, rather than mere information.

The result is a test that can be rather unsatisfactory for large companies, in which it can be difficult to ascertain precisely which employees have the implied or actual authority to instruct the company’s lawyers on a given matter.

Lawyers’ working papers privilege

As an alternative argument, RBS asserted that “lawyers’ working papers” privilege covered the majority of interview notes which had been prepared by in-house or external lawyers.

The bank accepted that if its main claim to legal advice privilege had failed, then a verbatim transcript of the interviews could not be privileged either. However, RBS said that the interview notes were summaries, not transcripts, and would therefore reveal the preparatory work of the lawyer, their own “mental impressions” and the train of their inquiry.

Hildyard J found that RBS needed to demonstrate the likelihood that the interview notes would provide a clue as to the legal advice given to RBS. The fact that a document may reveal the lawyer’s train of inquiry was insufficient – as was the fact the notes had been produced in order to assist their provision of legal advice.

The Court found that RBS had provided insufficient evidence to prove its case on this test and criticised RBS’s evidence as “conclusory in nature“.

Proving a claim for privilege

As RBS demonstrates, providing sufficient evidence to a court, regulator or opposing party that your documents are privileged, without simultaneously destroying the privilege you are trying to protect, is a difficult balance.

In Astex, Chief Master Marsh found that the type of privilege claimed and the factual basis for doing so should always be made clear. Although it is not necessary in most cases to list each document individually, in light of the limited and confusing evidence of the defendant, the Court ordered it to produce a witness statement listing: all documents and dates, the employees and ex-employees involved in interviews, the dates of their interviews and the type of privilege claimed.

It follows that whilst parties have traditionally been the “judge in their own case” when it comes to privilege claims, the assertion of privilege is increasingly subject to scrutiny and challenge. Whilst the Court in Astex was at pains to discourage tactical challenges, in cases where the main burden of document disclosure falls to one party then such tactics are inevitably more likely.

Cross-border investigations

Companies conducting cross-border investigations and sharing information with global subsidiaries should also be mindful that documents which are privileged in one jurisdiction may not be privileged in another.

In RBS the bank argued that US rather than English law should apply on the basis that the US was, in fact, the jurisdiction most closely connected with the lawyers’ engagement.

The Court accepted that under US law the interview notes were likely privileged. However, Hildyard J saw no justification for not applying English law as the law of the place of the proceedings. From a practical perspective, allowing parties to effectively choose the law of the engagement would lead to complex disputes as to which law applied and require expert evidence on the application and effect of any foreign law.

Practice points

Under English law, materials produced for the purposes of actual or impending litigation will attract privilege and can be withheld from opponents or authorities.  However, the same protection is not afforded to company investigations conducted for other purposes.  Communications between the “client” (narrowly defined) and lawyers for the purposes of obtaining legal advice will still be privileged, but as RBS illustrates, there may be wide classes of documents that will not be privileged.

Companies should consider from the outset whether litigation privilege is likely to apply to their internal investigation. This can be difficult, for example in relation to certain types of regulatory proceedings, or where investigations are carried out for more than one purpose.  If litigation privilege does not apply, the following tips could maximise the application of legal advice privilege and help manage risk:

  • Think ahead. Consider the purpose of the investigation and possible risks (litigation, regulatory, reputational) which arise if the evidence sought is uncovered. Consider the particular regulators which may get involved and their position on internal investigations – could a detailed, lengthy investigation actually damage your prospects of a settlement or deferred prosecution agreement?
  • Consider the client. Remember that employees without the authority to instruct the lawyers do not, on the current law, qualify as a “client” – and this is the case even if they are the company CEO, and whether the lawyer(s) concerned are external or in-house. Avoid new document creation and restrict written communications accordingly. Consider whether you define the “client” at the outset of the investigation.
  • Involve in-house or external lawyers. Although their involvement will not clothe the entire investigation in privilege, involving lawyers at an early stage will still offer the best prospects of maximising privilege protections.
  • Employee interviews. Instruct the employee (and those conducting the interview) to keep the content of the meeting confidential. Verbatim transcripts or summaries which do not provide a clue to the advice given will not be privileged (unless the employee is also a “client” with authority to instruct the lawyers). You might want to consider whether employee interviews should be documented at all – although in major investigations with dozens of employees being interviewed, avoiding documentation is not going to be practical.
  • Reassess regularly. Approach the investigation (and interviews) in stages and reassess at regular intervals how the value of the internal investigation compares with the risks. Has there been any change in circumstances (for example, litigation may now appear inevitable) or those constituting the “client”?