In a recent interlocutory decision in the RBS Rights Issue Litigation, Mr Justice Hildyard held that notes taken of employee interviews during internal investigations by the bank did not attract privilege. The case is a useful reminder of the pitfalls in this area and where arguments for litigation privilege do not arise.
Our previous articles covering this issue can be found here: Under Investigation? Are your communications privileged?, Legal privilege and investigations: welcome clarity from the courts, Legal advice privilege in the context of investigations.
The claimants (shareholders in RBS seeking to recover investment losses following rights issues in 2008) were seeking specific disclosure and inspection of the notes taken of employee interviews as part of two internal investigations carried out by RBS. The interview notes were taken by a combination of RBS’ in-house lawyers, external lawyers and non-lawyers (RBS’ Group Secretariat). There were 124 interviewees in total, comprised of employees and ex-employees across a number of divisions, locations and levels of seniority. The notes were described by RBS to be summaries of the interviews rather than verbatim transcripts.
RBS resisted disclosure of the interview notes on the following grounds:
- That, if English law applied (as the law of the place of the dispute), the notes were covered by legal professional privilege (also known as legal advice privilege) (”LPP“), or at least as lawyers’ privileged working papers;
- That, US Federal Law was the applicable law, which provided a wider privilege protection; or
- Even if US Federal Law did not apply, the court should exercise its discretion to restrict inspection.
There was no claim for litigation privilege.
1. Legal Professional Privilege
LPP entitles a party to withhold from inspection documents which record communications between a lawyer and the client for the purpose of the client obtaining legal advice. LPP can also extend to factual information communicated between client and lawyer provided it forms part of a “continuum of communication“ in which the client is ultimately seeking legal advice.
RBS did not assert that the interview notes were part of a communication between RBS and its lawyers in which advice was sought or given. It argued, however, that each of the notes was privileged since it was a record of a communication between a lawyer and a person authorised by RBS to communicate factual information to its lawyers for the purposes of enabling RBS to seek legal advice.
The key authority relevant to this issue is the controversial Court of Appeal decision arising out of the (failed) BCCI litigation against the Bank of England: Three Rivers (No 5)3. That case decided, in short, that information obtained from an employee of a party was not privileged – even if obtained to enable a party to seek legal advice – because the employee was not “the client”. The practical difficulty caused by this decision has been how one defines the lawyer’s “client”.
Since Three Rivers (No 5) was binding on the court, RBS had to argue that the decision should be confined to its particular facts. It contended that Three Rivers (No 5) had only considered the application of LPP to internal documents of the bank and not to communications directly between the lawyers and employees authorised by the client to communicate information to the lawyers.
The claimants, on the other hand, argued that, as a matter of law, the only individuals whose communications for the purpose of attracting LPP would be treated as “client communications” were those who, whether as a matter of ordinary corporate theory of “attribution” or by “special designation” could be treated as the “directing mind and will of the corporation” for the purposes of seeking and receiving legal advice.
- Mr Justice Hildyard agreed with the reasoning of the Chief Master in the recent case of Astex Therapeutics Limited v Astrazeneca AB4 which held that notes of interviews of employees prepared by lawyers were not privileged as the employees in question could not be regarded as forming part of a class of persons authorised to give instructions to the lawyers and therefore did not fall within the class of “client”. In coming to his decision, the Chief Master stated that “it is unlikely, “in most circumstances” where a corporation is “seeking information” from employees and former employees that persons who merely provide that information will be the client for the purposes of Three Rivers (No 5).”
- Applying the reasoning in Astex Therapeutics and Three Rivers (No 5), Mr Justice Hildyard found that the interviewees in this case were providers of information as employees and not as clients. As such, the interview notes could not be classified as communications between a client and a legal adviser.
- As to whether the client could only consist of persons whom formed part of the “directing will and mind of the company”, Mr Justice Hildyard did not consider it necessary to determine whether Three Rivers (No 5) provided such a restriction. However, he did express the view that such a restriction would “often reflect reality”; he was of the view that “only communications with an individual capable in law of seeking and receiving legal advice as a duly authorised organ of the corporation should be given the protection of legal advice privilege.”
Accordingly, Mr Justice Hildyard held that the interview notes, albeit that they recorded direct communications with RBS’ lawyers, comprised information gathering from employees or former employees to enable RBS, through its directors or other persons authorised to do so on its behalf, to seek and receive legal advice. The interview notes were not therefore covered by LPP.
Lawyers’ Working Papers Privilege
It is common ground that under English law LPP also extends to lawyers’ working papers if to provide disclosure of such documents would provide the other party with a “clue” as to the “trend of advice” being given to the client by its lawyer.5
RBS sought to argue that the notes taken by lawyers were therefore covered by LPP as they reflected (i) the work undertaken in preparation for the interviews (i.e. they revealed the lawyers’ train of inquiry) and (ii) a selection by the author of the points to be recorded.
The claimants argued that in order to attract LPP it was not sufficient that the notes conveyed the lawyers’ train of enquiry but that it was clear on the authorities, particularly the Court of Appeal’s decision in Sumitomo6, that the test was whether the document would, if disclosed, provide a clue as to the legal advice given.
Mr Justice Hildyard held that while notes taken of an interview were, in general, likely to reflect the note taker’s particular interests, lines of enquiry and perception of reflective importance of the points, the test as to whether those notes could attract LPP is, as was reinforced in Sumitomo, whether the notes reflected the trend of legal advice and not the lawyer’s train of inquiry.
This was essentially an evidential issue and the judge was not satisfied on the evidence put forward by RBS in its witness statement that the notes met this test.
2. US Federal Law
It is a well-established principle or convention of the English courts that privilege will be determined by way of the lex fori – i.e. the laws of the jurisdiction in which the claim has been brought.
RBS (somewhat ambitiously) sought to argue that the concept of LPP has become a fundamental human right rather than simply a rule of evidence which, combined with the increase in multijurisdictional litigation, has rendered such a rule obsolete. RBS submitted that the English court should instead adopt a new choice of law rule, pursuant to which the court would apply “the law of the place with which the engagement or instruction, pursuant to which the relevant documents came into existence, have their closest connection.” Applying such a test, RBS argued that US federal law would apply pursuant to which the notes would be privileged (since the US has rejected a similar “control group test7“).
Mr Justice Hildyard did not agree. In his view, English laws of privilege ultimately reflect public policy decisions as to the balance to be struck between a party’s private right and the public interest in full disclosure of relevant documents. Therefore, while the current rules may not be entirely satisfactory in all respects, Mr Justice Hildyard was not satisfied that either the status of LPP as a fundamental right or the rise in multijurisdictional litigation was a sufficient basis for disturbing the current convention.
3. The Court’s discretion
Lastly, RBS sought to rely on CPR 31.19 under which a party can apply to the court for an order entitling the withholding of disclosure or inspection of a document based on a “right” or a “duty”. RBS argued that in light of comments made by Neuberger J (as he then was) in Morris v Banque Arabe et International d’Investissement8 to the effect that this provision could cover a right or duty under foreign law, RBS could rely on its right of privilege under US law as a basis for withholding inspection of the interview notes in these proceedings.
While Mr Justice Hildyard accepted RBS’ submission that the court has the ultimate discretion not to order inspection of documents despite the fact that a party’s claim to privilege under English law has failed; he was of the view that such discretion should only be exercised where there are “compelling grounds”.
Taking into account, amongst other things, the fact that the proceedings in question related to a Prospectus that was subject to the English law of FSMA, he was not satisfied that this was a special enough case to meet that hurdle.
RBS’ claim failed therefore on all of the above grounds and the court ordered inspection of the interview notes.
Points to take away:
As Mr Justice Hildyard noted, Three Rivers (No 5) has been the subject of much criticism. The effect of the Court of Appeal’s decision has been a great deal of confusion in practice around the definition of the lawyer’s client, and a very marked distinction between the practical impact of LPP and litigation privilege. This case was a forceful challenge to the potential scope of the decision but, perhaps not surprisingly, not a successful one.
It may well be that the Supreme Court looks at this area again. Lord Neuberger last year discussed in a speech given on “The scope and role of the Legal Professional Privilege and its proper place in the context of corporate internal investigations” some of the particular challenges LPP faces in internal investigations and regulatory enquiries (our views on this speech can be found here). But, for now, this remains a challenging area.
The key take away points seem to us to be as follows:
- Where the client is a corporate body, it is important to consider designating a specific group of employees to obtain legal advice on its behalf as “the client”. Otherwise, the court is likely to limit the definition of “client” for the purpose of LPP to those persons who are the “directing will and mind of the company” – i.e. the board of directors or equivalent.
- Lawyers’ notes of interviews with “non-clients” will only attract LPP if they contain input which, if disclosed, would provide a clue as to the legal advice given. It is not sufficient that the questions asked or lawyers’ markings would show the lawyers’ train of enquiry.
- In order to sustain a claim to LPP on the basis of lawyer’s working papers, the evidence provided to the court must be sufficiently detailed and will likely need to include examples of the type of legal input contained in the interview notes (while, of course, trying not to waive privilege).
- The court has the discretion to refuse to order inspection of an otherwise disclosable document including in circumstances where a party has the right to withhold that document from disclosure or inspection based on foreign law rules. However, this cannot be relied upon: it is unlikely to exercise such discretion unless there are particularly exceptional circumstances for doing so.