Litigation is all about winning. However, how litigation is handled can have serious implications for the reputation of a business and its senior management and for businesses operating in a regulatory environment litigation can have serious regulatory consequences.
In Tullet Prebon plc v BGC Brokers LP  EWCA Civ 131, both the High Court and Court of Appeal made highly critical comments about BGC’s Executive Managing Director and General Manager, Mr Tony Verrier, formerly COO of Tullet Prebon, impugning his honesty in his pretrial conduct (including conducting a campaign to poach key employees from Tullet Prebon in breach of their obligation to their employer, without regard for the lawfulness or otherwise of this campaign) and having been misleading in his evidence. As a result of these judicial findings, the FSA found Mr Verrier was not a fit and proper person and made an order prohibiting him from carrying out a controlled function. It did so without further investigation, relying on the findings made in court.
This was an extreme case but risks arise for regulated businesses if insufficient thought is given to the regulatory or compliance background to the litigation, which may itself be about something different (for example, the duty of fidelity/posttermination restrictive covenants). Therefore, regulated employers should consider certain key issues when litigating:
Investigation. Don’t litigate and hope; if there has been wrongdoing it is better to know at the outset so that the litigation risk can be assessed and also the whether there is any regulatory risk.
Establish and protect privilege. Establish what is privileged and what is not from the outset. It is important that there is a careful analysis of what communications and investigations are privileged and which are not. This will determine what pre-litigation steps are taken, how and by whom. If you get this wrong, you may be forced to make prejudicial and embarrassing disclosures. Make sure lawyers are clear about who their client is, the litigation reason for their communications with witnesses and that their communications are privileged.
Regulatory and compliance risk assessment. Has anyone considered the regulatory risk in relation to the litigation? Once the factual investigation has been conducted, this assessment is a key further factor in determining litigation strategy. Is there a regulatory risk to the business arising from the likely evidence in pursuing or defending a claim and do any regulatory risks outweigh the litigation benefits? Remember, most cases do not start as regulatory issues and regulatory issues arise as a result of the facts uncovered through investigation, the conduct of the litigation and the approach to presenting evidence to the court.
Should employees who are giving evidence be separately represented? This is a key issue and needs to determined early. If unlawful conduct is discovered, a conflict of interest may arise between employee and employer. If jointly represented, this also places the lawyers in a position of conflict and they may have to cease acting for both parties. On the other hand if there is separate representation, what information will be shared. Once privilege is “shared” employers may lose the right to determine when privilege should be waived (e.g. to show it took appropriate legal advice and acted in accordance with it).
Do your employees understand the importance of the regulatory context in which they operate? Train your employees about the regulatory consequences of breaching their own and others’ employment obligations.
Whether one agrees it is justified or not, there is a growing public and political pressure on regulators to preserve public confidence in the industries. Against this background, businesses must be ever vigilant to avoid regulatory problems, including in the way they conduct litigation.