Property Alliance Group Limited v The Royal Bank of Scotland Plc  EWHC 1557 (Ch)
The judgment of Mr Justice Birss in Property Alliance Group Limited v The Royal Bank of Scotland plc, handed down on 8 June 2015, provides important guidance for firms on the applicability of privilege to documents relating to both internal and regulatory investigations of misconduct.
PAG sued RBS alleging the mis-selling of interest rate swaps. PAG relied on alleged misrepresentations by RBS in relation to LIBOR. RBS had settled with various regulators and admitted certain LIBOR misconduct. It denied any misconduct concerning GBP LIBOR, however, and positively asserted that there had been no regulatory findings against it in relation to GBP LIBOR.
During disclosure, RBS was ordered to file a disclosure list of internal reports, reviews and summaries relating to allegations of GBP LIBOR misconduct, as the Court considered that this would enable the parties to conduct a more direct and focused disclosure exercise.
Having produced the disclosure list, PAG challenged whether RBS was entitled to withhold from inspection on the basis of privilege a number of documents identified in its disclosure list.
The documents in question were (i) documents produced by a sub-committee of the Bank called the Executive Steering Group (the “ESG”) which was set up to oversee the Bank’s internal investigations into LIBOR misconduct (the “ESG Documents”) and (ii) communications relating to the bank’s dealings with the Financial Services Authority (“FSA”) prior to the FSAissuing a Final Notice in February 2013 (the “FSA Documents”). RBS claimed that the ESGdocuments were covered by legal advice privilege and the FSA Documents were covered by without prejudice privilege.
The ESG documents
The ESG documents were referred to in the disclosure list as “original and copy documents passing between the defendant and its external and internal legal advisors for the purpose of taking and receiving legal advice on the regulatory investigations into the Defendant’s setting of LIBOR”.
The court held that the critical issue for determining whether legal advice privilege applied to the ESG Documents was the role of the ESG itself.
The court took the view that if the role of the ESG was solely to provide legal advice, then the documents would in all probability be privileged; however, if the role of the ESG also included overseeing the investigations and reporting to the bank (of which there was some evidence) then documents produced by the ESG for those wider purposes would not necessarily be privileged.
The court was not satisfied that RBS had provided sufficient detail in its disclosure list or supporting witness statement to enable the court to assess whether privilege had been correctly applied and RBS was therefore ordered to produce the documents to the court for inspection.
There is nothing new in this judgment, in the sense that it reminds us the purpose for which documents are created is key to whether privilege can attach to them. The court made it clear, however, that factual summaries of the investigations circulated to inform other people within the bank might well not be privileged. The case is therefore an important reminder that parties should exercise caution in the breadth of the responsibilities and functions which are given to bodies formed to deal with investigations, or they run the risk that the documents they create may be disclosable to their opponents in related litigation.
Without prejudice privilege
RBS claimed the right to withhold communications exchanged in settlement negotiations with the FSA, prior to being issued with the Final Notice, on the basis they attracted without prejudice privilege.
PAG argued that the without prejudice rule did not apply in the context of regulatory investigations, because the parties were not seeking to settle in the same way as in civil litigation. The public policy rationale for encouraging parties to negotiate and settle did not apply because discounts for early settlement are mandatory under FSA (now Financial Conduct Authority (“FCA”)) rules and the FSA/FCA not only could act on information received in these discussions but in some cases would be obliged to.
Interestingly, the FCA made written submissions to the court against disclosure of the FSADocuments. The court agreed with its core submissions. The court held that without prejudice privilege applied to such communications before the FCA, the Upper Tribunal and in civil litigation between the firm in question and a third party. It accepted that it was in the public interest for settlements between firms and the FCA to take place. The differences between civil litigation and FCA investigations did not prevent the application of the rule. The fact that the FCA was statutorily entitled or could find itself obliged to disclose information learned on a without prejudice basis was no different to there being exceptions to the without prejudice rule in civil litigation.
The issue for RBS in this case, however, was its reliance in its defence on the fact that the Final Notice had not contained findings against it in respect of GBP LIBOR. The court held that the right to rely on the without prejudice rule to withhold documents from inspection could not be maintained in civil proceedings if the basis upon which a Final Notice was decided was itself in issue in the proceedings. Accordingly, RBS was ordered to produce the documents for inspection.
Waiver of privilege
Lastly, RBS had shared documents which it said attracted legal advice or litigation privilege with the FSA and other regulators during the investigation process. It produced evidence that it had done so on a confidential non-waiver basis. PAG challenged this on the grounds that the regulators were able to share documents with other parties in performance of their statutory duties or had the statutory right to publish the information. As this had not actually occurred, however, the court was satisfied that privilege had not been waived by RBS. This will be welcome news to the FCA, which expects parties to deal with it on an open and frank basis and explicitly envisages in that context the sharing of material from their internal investigations.
However, as with the FSA Documents, the court held that because RBS was relying on the lack of regulatory findings against it in relation to GBP LIBOR, the documents should be inspected.
As matters stand, therefore, it is dangerous for parties to defend civil proceedings by relying on the absence of adverse findings in a regulatory decision notice. In our view, however, this aspect of the decision is open to question. RBS had pleaded a point, and as a result had to try and adduce evidence to make that point good at trial. However, the court having accepted these documents were privileged, it is difficult to see any justification for inspection given thatRBS was not seeking in its defence to rely on their content.
The court delayed its order for inspection for four weeks so that the FCA can formally intervene in the case if it wished to. It must be tempted to do so.