In the long running RBS Rights Issue litigation, the English High Court has recently ruled that notes of interviews of bank employees, prepared by the bank's in-house lawyers who conducted the interviews as part of an internal investigation, were not privileged from production.
Although the decision does not change the law in Australia (which, broadly speaking, protects communications made for the dominant purpose of giving or obtaining legal advice or for providing services in relation to actual or anticipated litigation), it may still encourage increased challenges by regulators and others to claims of privilege over lawyer work product created in the course of undertaking internal investigations.
This note summarizes the RBS decision and the current legal position in Australia, and offers some practical tips for preserving privilege in the context of Australian internal investigations.
The RBS Rights Issue Litigation
As part of the proceedings known as the RBS Rights Issue litigation, the Royal Bank of Scotland (RBS), sought to claim legal professional privilege over transcripts and notes of interviews in relation to two internal investigations. The interviews were conducted by RBS's in-house lawyers with current and former employees of the company, prior to litigation being contemplated. The internal investigation was connected with US regulatory investigations impacting RBS.
In reaching its decision, the English High Court considered the question of who is the 'client' for the purposes of legal professional privilege. This issue required an examination of the controversial decision of the English Court of Appeal in Three Rivers (No. 5) (Three Rivers District Council and others v Governor and Company of the Bank of England (No 5)  QB 1556). The High Court confirmed the law as stated in Three Rivers (No. 5), that in England not all officers or employees within a company should be treated as a client for the purposes of legal professional privilege. Rather, only those employees who are dealing with the relevant matter on which the lawyer is giving advice should be considered to be a client. In Three Rivers (No. 5), the court held that the 'client' for the purposes of legal professional privilege was limited to a three-person Inquiry Unit authorised to seek and receive legal advice.
In continuing the position adopted in Three Rivers (No. 5), the High Court ruled that legal professional privilege did not attach to the interview transcripts and notes from interviews conducted by RBS's in-house lawyers with current and former employees as part of their internal investigations, because the employees were not the 'client' and therefore the transcripts and notes did not record lawyer -client communications, even though they represented information that was gathered by RBS for the purpose of enabling RBS to seek and receive legal advice. Additionally, while lawyers' working papers would ordinarily be protected by privilege, verbatim transcripts of non-privileged interviews were not; and RBS did not present evidence substantiating that the documents in issue were not verbatim transcripts, or could reveal the trend of legal advice. The Court also rejected arguments that given the connection with US regulatory investigations, US law should apply in determining whether the notes and transcripts were privileged.
The RBS decision has attracted criticism for impeding the conduct of legitimate internal investigations. Some have even suggested that notes not be taken at all in employee interviews conducted for such investigations in light of the decision.
The Australian position
In Australia, legal professional privilege protects from disclosure, confidential communications between lawyers (including lawyers employed by corporate entities) and clients, made with the 'dominant purpose' of giving or obtaining legal advice or for the provision of legal services in relation to existing or anticipated legal proceedings.
Australian courts have not followed the narrow approach in the RBS Rights Issue litigation and in Three Rivers (No. 5) as to who constitutes a client, in determining whether legal advice privilege is available. They have recognised that:
- Legal advice, for the purpose of considering whether legal advice privilege applies, can extend to factual investigations carried out by lawyers to enable them to advise a client on the risks it faces and the course of action it should take (AWB Limited v Cole (No 5) (2006) 155 FCR 30, 49)
- Legal advice privilege can extend to communications between a lawyer for a client and a third party, provided the communication meets the dominant purpose test (Pratt Holdings Pty Limited v Commissioner of Taxation (2004) 136 FCR 357)
Having said that, Australian courts have taken differing approaches about whether lawyers' notes of interviews of witnesses are protected by privilege, depending on the particular circumstances involved.1
What can you do to protect privilege in relation to Australian internal investigations?
In a climate where Australian regulators have encouraged greater access to the output of internal investigations, and complain about what they consider to be excessive claims of legal professional privilege, the RBS decision may spur Australian regulators to more aggressively challenge claims made by entities they are investigating, notwithstanding that the narrow approach in RBS and Three Rivers (No. 5) is not the law in Australia. Australian companies conducting internal investigations into issues the subject of regulatory interest should be alive to those risks.
Simply involving lawyers in conducting the investigation will not be enough to confer privilege on communications about the investigation. In each case, including in relation to notes of interviews conducted for the investigation, the issue will be whether or not the particular communication was for the dominant purpose of providing legal advice, or provision of legal services in connection with existing or anticipated litigation.
Some key precautions that companies embarking on internal investigations should consider include:
- Clearly identifying the objectives of the investigation and of interviews conducted for the investigation. Mixed purposes are often fatal to claims for privilege. If an interview is to enable a company's lawyers to give legal advice, or in connection with actual or anticipated litigation, the interview should be conducted by lawyers and that purpose should be made explicit (including to the interviewee)
- Ensuring that where interviews are for the purpose of giving legal advice, that notes of interviews are prepared by the company's lawyers, and are not verbatim transcripts of interviews, but record a connection with the contemplated advice. Any dissemination of the notes should be controlled on a strict 'need to know' basis and consistent with maintaining their confidentiality
- If other experts (such as forensic accountants), whose work would not ordinarily be protected by privilege, are to be engaged for the investigation, identify the purpose of their work. If it is to assist the company's lawyers give legal advice, that should be clearly documented, including in the arrangements to engage the expert, and ideally their work should be directed by the company's legal advisers
- Ensuring that there are appropriate controls over internal communications about the investigation, and that they occur only on a 'need to know' basis
- Identifying whether the investigation has multi-jurisdictional aspects, and if so, assessing the rules governing privilege in each relevant jurisdiction and how they might impact the conduct of the investigation. As the RBS case demonstrates, what may be protected by privilege in one jurisdiction will not necessarily receive the same treatment in another