It is common for a client or former client which finds itself in a dispute with a third party to request that a financial institution locate, preserve and/or provide access to its files, where those documents relate to a mandate or transaction undertaken on the client's behalf, which may have some connection with the dispute. This article considers: the legal position in relation to such requests; the risks to the financial institution in accommodating such voluntary requests for documents; and some practical steps which can be adopted to try to insulate the financial institution from such risks.

Key points

  • A client generally does not have the right to inspect the files and working papers which remain the property of a professional adviser.
  • If the professional adviser is an agent of the principal (client), then documents created for the benefit of the principal generally are within the principal's control.
  • There are risks for financial institutions in voluntarily cooperating with a request for assistance in the context of a third party dispute.

Legal position in relation to a client's right to documents

A client typically makes such a request where:

  • it believes it has a disclosure obligation in legal proceedings and the financial institution holds potentially relevant documents which the client believes it may be obliged to review, disclose and make available for inspection;
  • it wants to consider the merits of its position in respect of an anticipated dispute and is keen to review potentially relevant documents to assess the strength of its position; or
  • it wants to explore, in the latter stages of a dispute, whether any additional evidence may be available to support its position in the litigation.

From an English law perspective, when faced with such a request, the starting point is to consider whether the client has any control over the documents in the financial institution's files. Assuming the request arises in the context of ongoing litigation, the test essentially is one of “control” as per Civil Procedure Rule 31.8:

  • A party's duty to disclose is limited to documents which are or have been in his control.
  • For this purpose a party has or has had a document in his control if — (a) it is or was in his physical possession; (b) he has or has had a right to possession of it; or (c) he has or has had a right to inspect or take copies of it.

In the present context, when considering the application of the CPR 31.8 test, the “Party” is the client requesting access to the documents contained in the files of the financial institution. In the majority of cases, the question is essentially whether the client has any rights, as per CPR 31.8(2)(c), to inspect or take copies.

Such inspection rights can arise either:

  • by virtue of the express contractual terms governing the relationship between the client and the financial institution; or
  • as a by-product of the nature of the relationship between the client and the financial institution. 

Upon receipt of a request from a client, the first step is to review the contractual position and, in particular, the standard terms and conditions which govern the financial institution's relationship with the client. Is there anything in the engagement letter, the retainer documentation or the standard terms and conditions which provides for or limits a client's entitlement to access the financial institution's files? Generally, it is not common to see standard terms and conditions which regulate such access to the files of the financial institution. There will normally be language which permits a financial institution to disclose documents, created during the course of a client mandate, to a third party in certain specified circumstances (including under legal compulsion, in response to a regulatory inquiry or at the financial institution's discretion when it is in the interests of the financial institution to do so). However, such clauses give the financial institution protection against allegations of breach of confidence when a third party (not the client itself) is seeking access to documents and do not regulate the client's own access rights.

In the absence of an express contractual term, the nature of the relationship between the financial institution and the client needs to be considered as a matter of common law. There is surprisingly little recent authority directly on this point and none that directly considers the position of a financial institution and its clients. However, there are some relatively dated, but still authoritative, cases which consider the rights of access to the working files of professional advisers (in particular, audit accountants and chartered surveyors). The critical factual feature upon which these cases turn is the extent to which the relationship is one of principal and agent or otherwise.

Where there is a principal/agent relationship, then documents created by the agent for the purpose of carrying out work at the direction and instruction of, and for the benefit of, the principal can generally be required to be produced by the agent to the principal and the principal will have a right to access, inspect and copy the documents consistent with the “control” requirement of the CPR. However, the courts have generally regarded the relationship between a professional adviser and its client not to be an agency relationship and therefore the client generally does not have any rights to the files and working papers, which remain the property of the professional adviser.

The two leading authorities in relation to the characterisation of the relationship between professional advisers and their clients remain Leicestershire County Council v Michael Faraday & Partners Ltd [1941] 2 KB 205 and Chantrey Martin (A Firm) v Martin [1953] 2 QB 286. In Leicestershire CC, the Court of Appeal considered rating advisers and surveyors who were employed by a county council for five years to give advice and assistance in connection with the valuation of hereditaments in the council's area. At the termination of the agreement, the county council claimed to be entitled to all documents, books, maps, plans and notes which had been prepared by, or had come into the possession of, the valuers in the course of the performance of their duties. The Court of Appeal rejected that claim and held that the relationship was that of client and “a professional man” and not that of principal and agent. MacKinnon LJ held that:

“If an agent brings into existence certain documents while in the employment of his principal, they are the principal's documents and the principal can claim that the agent should hand them over, but the present case is emphatically not one of principal and agent. It is a case of relations between a client and a professional man to whom the client resorts for advice. I think it would be entirely wrong to extend to such a relation what may be the legal result of the quite different relation of principal and agent. [The documents in question] are documents which he has prepared for his own assistance in carrying out his expert work, not documents brought into existence by an agent on behalf of his principal, and, therefore, they cannot be said to be the property of the principal”

The judgment of Goddard LJ was equally emphatic. In citing with approval an earlier case involving quantity surveyors (London School Board v Northcroft (1889) Hudson's Building Contracts, 4th E, vol ii, p 147), Goddard LJ found the case to be:

“[D]irect authority of an eminent judge that in circumstances such as these there is no claim against professional men for the documents which they prepare to enable them to carry out the work which they are employed to do.”

The Leicestershire CC case was subsequently followed and approved by the Court of Appeal in Chantrey Martin, which remains the leading authority on the access rights to the papers in the files of a professional adviser. Chantrey Martin concerned audit accountants and came to the same conclusion as the court of appeal tribunal inLeicestershire CC that the documents of the type in dispute (which included the files of all working papers relating to the audit, draft accounts and draft tax computations) were the property of the accountants.

The Chantrey Martin case, in fact, contains no substantive analysis above and beyond the Leicestershire CC case and, as Hollander QC notes in Documentary Evidence, 11th edition, there is no clear statement of principle contained in the case, beyond the simple conclusion reached itself. However, it can be derived from the Court of Appeal's judgment in Chantrey Martin that the court has rejected any suggestion that a right of ownership or inspection arises from the fact that the client directly or indirectly paid for the work undertaken, which resulted in the documents being created. Any argument advanced by a client that a right of access is founded on the basis that the client paid for the work which led to the creation of the documents, can therefore be strongly resisted.

Finally, it is possible for a professional adviser to be an agent in respect of some aspects of its retainer (eg, corresponding with third parties on the client's behalf ), but not others (see Gomba Holdings UK Ltd and Others v Minories Finance Ltd and Others [1988] 1 WLR 1231). This distinction was also made in the Chantrey Martin case, in relation to correspondence undertaken by the accountants on behalf of their client with the Inland Revenue, which the court concluded must have been created and received by the accountants as agents for the client and, as such, was not the property of the accountants.

Application of the case law to modern financial institutions

It is perhaps surprising, in view of the volume of documentation (especially in electronic form) which would now make up a financial institution's files and the breadth of services now offered, that there has been no reported English cases considering a client's right of access to such documents. This is particularly so given the proliferation of litigation and related disclosure issues which have engulfed the financial services industry since the above two cases were decided.

There appears no good reason, however, why Chantrey Martin would not remain good law, by factual analogy, to the majority of types of relationship between a modern financial institution and its clients. The same analysis is likely to apply to the files of investment banks that act on debt and equity capital markets issuances, provide general advice about capital raising initiatives, or advice in relation to M&A mandates. Equally, retail and private banks advising their clients about structured products investments and other opportunities are being retained for their professional advice and the relationship will generally fall within the type contemplated in the Leicestershire CCand Chantrey Martin cases.

One area which may be open to more uncertainty would be where a financial institution is an investment manager in relation to a client's assets under a full discretionary management arrangement. Such relationships are often expressly stated in the management agreements themselves to be one of principal and agent and there are certainly arguments why a client in these circumstances should have greater rights of access to the files of its discretionary investment manager to evidence the investment decisions taken on its behalf and in its name. However, even in this scenario there is still probably a distinction between those documents which evidence the actual investments made on behalf of the client and those documents which evidence the thought processes of the investment manager, with full discretionary investment powers, in deciding to make particular investments on behalf of the client. It is suggested that for the second category, no right of inspection would arise and therefore the documents would not be in the control of the client. The split approach adopted in Gomba Holdings would likely apply.

The risks in voluntarily cooperating with a request for assistance

Even if the client cannot demonstrate a right to inspect the files of the financial institution, there will often be pressure on the financial institution to consider allowing access to its files to clients on a voluntary basis, not least because of the commercial relationship between the client and financial institution. However, in considering such requests, it is important to understand what risks the financial institution faces in voluntarily providing assistance in such circumstances.

The risk that the financial institution gets dragged into third party litigation

Regardless of the stated intention of the requesting party, where access to documents is provided, this can increase the risk of the financial institution becoming dragged into the proceedings. Firstly, there is the risk that one or other of the parties believes the documents suggest a cause of action directly against the financial institution itself. Even where this is not the case, where relevant documents are identified and disclosed by the requesting client, that client is then very likely to want to adduce witness statement evidence from the financial institution's employees, to explain or contextualise the documentary evidence. The other side may also want to test whether there is further relevant evidence held within the financial institution's files, which counters or reduces the impact of the selection of documents disclosed. This can lead to further requests for assistance or an application for third party disclosure on a compelled basis. Managing the fallout from these developments can become a drain on the resources of the financial institution.

The costs of searching, reviewing and identifying documents

Even if a request appears reasonably self-contained, it can still lead to significant cost in conducting the searches and review work necessary. All documents potentially in scope, will normally have to be reviewed by the financial institution prior to release for third-party confidentiality issues and privilege. A well-advised financial institution will also want to have understood the implications and risks of providing any documents to the client in advance. The documents may only be available on backup tapes or in archives and some form of systematic search will need to be followed for all but the most readily-accessible records. It would never be advisable to allow a client and its advisers unfettered access to a financial institution's working files. As a result, internal resource, potentially with the assistance of external counsel, will need to be diverted to undertake any review and collation exercise. Finally, client requests also often include a request to preserve potentially relevant documents. Again, as well as the costs of identifying potentially relevant materials to preserve, the costs of storing and holding documents (especially electronic documentation through hosting), potentially for several years, can be a significant ongoing cost and an agreement to preserve should not be conceded lightly.

The broader reputational risks

Providing copies of documents without careful thought as to appropriate restrictions on use also carries potential reputational risks for the financial institution. Once handed over, it is very difficult to restrict effectively what ultimately happens to such documents. Further, the increased risk that the financial institution's employees necessarily become witnesses of fact in any proceedings, also increases the potential reputational fallout which can flow from being connected to litigation.

Practical steps

Requests for access to documents often come to the client's regular business contact within the financial institution. This individual will invariably be the key relationship manager for that client and their instinct will normally be to assist the client in any way possible to preserve the commercial relationship. The contact may not grasp the potential risks inherent in such requests touched upon above and it often emerges that either commitments have already been made by the front office — and sometimes documents may already have been provided — before it comes to the attention of the in-house legal function. It can be very hard to undo such steps once taken.

To reduce the risk of this happening, a financial institution could consider adopting a formal policy or procedure for dealing with such requests for assistance in the context of third party litigation, which can be recorded in writing and disseminated to the business. Developing such a policy promotes consistency of approach across the institution and has the advantage that it can be cited to the client as the reason why the institution is not in a position to assist (even though the business may wish to do so for client relationship reasons). Including an express exclusion of document access rights in the terms and conditions can also be considered.

Another possible step is to include guidance in the financial institution's employee handbook, which would assist employees in knowing their obligations when they receive a request for assistance from a client. The handbook should make clear to all employees that all such approaches should be immediately referred to the in-house legal function before any substantive response is made and appropriate training around this issue can be developed by compliance.

This article first appeared in the November edition of the Butterworths Journal of International Banking and Financial Law.