In December 2016, the English High Court ruled that transcripts, notes and other records of witness interviews prepared by in-house and external counsel in the course of an internal investigation were not covered by either legal advice privilege (“LAP”) or lawyers’ working papers privilege. The Court’s ruling has significant implications for the way in which companies and their legal advisers conduct internal investigations before litigation is commenced or reasonably in contemplation.

Background

The decision^[1] arose in connection with The RBS Rights Issue Litigation which was brought by various shareholders of the Royal Bank of Scotland (“RBS”) against RBS in respect of a 2008 rights issue of RBS shares (“Rights Issue”). The claimants allege that the information provided by RBS in the Rights Issue prospectus was inaccurate or incomplete. Shareholders who had subscribed for RBS shares pursuant to the Rights Issue subsequently suffered financial loss when RBS’s share price collapsed in and after October 2008.

An application was made, by some of the shareholder claimants, for specific disclosure and inspection of two categories of transcripts, notes and other records of interviews of RBS’s employees and ex-employees (collectively referred to by the Court as “Interview Notes”), which were prepared by:

• RBS’s external counsel and non-lawyer RBS employees as part of the internal investigation RBS undertook in response to two US Securities and Exchange Commission (“SEC”) subpoenas relating broadly to RBS’s sub-prime exposures; and
• RBS’s in-house counsel as part of RBS’s internal investigation into allegations made by a former employee.

RBS claimed LAP in respect of both categories of Interview Notes; alternatively (except for those Interview Notes prepared by RBS’s non-lawyer employees), that the Interview Notes were lawyers’ privileged working papers. RBS did not claim that any of the Interview Notes were subject to litigation privilege.

RBS also resisted disclosure and inspection of the Interview Notes on the basis that the applicable law was not English law but US federal law under which (RBS contended) the Interview Notes were privileged and that, even if English law did apply, the Court should exercise its discretion and order that disclosure and inspection be withheld.

Legal Advice Privilege

Under English law, confidential communications between a client and its legal advisers which are created for the purpose of giving or receiving legal advice are privileged. The scope of LAP is narrower than that of litigation privilege as it does not extend to confidential communications between either a client or its legal advisers and a third party.

The leading authority on the scope of LAP is the Court of Appeal’s (“CoA”) 2004 judgment in Three Rivers (No. 5)^[2] in which the CoA held that, where the client is a corporate, the only communications which will attract LAP are those made between the client’s lawyers and those individuals authorised by or on behalf of the client to seek and receive legal advice:

“[it] is clear that [LAP] does not extend to documents obtained by third parties to be shown to a solicitor for advice…information from an employee stands in the same position as information from an independent agent.”^[3]

Attempting to distinguish its position from Three Rivers (No. 5), RBS submitted that:

“where an individual, with the authority of a corporation which is seeking legal advice, communicates to the corporation’s legal advisers at their request either instructions or factual information, in confidence and for the purpose of enabling that corporation to seek or receive legal advice, that  factual information) should be treated as if the individual were part of or an emanation of the client and protected by [LAP] accordinglcommunication (including anyy.”^[4]

Applying that submission to its case, RBS contended that:

• The interviews and Interview Notes were confidential and were for the purpose of enabling RBS to obtain legal advice;
• Each of the interviewees was authorised by RBS to be interviewed and their responses and the Interview Notes amounted to authorised communications, rather than internal communications preparatory to communications with RBS’s legal advisers;
• Each Interview Note contained confidential and direct communications between the employee being interviewed and RBS’s lawyers.

Whilst recognising the force of these submissions, nonetheless the Court held that RBS had failed to demonstrate any sufficient basis for not applying Three Rivers (No. 5) which, the Court held:

“confines [LAP] to communications between lawyer and client, and the fact that an employee may be authorised to communicate with the corporation’s lawyer does not constitute that employee the client or a recognised emanation of the client…

…[LAP] does not extend to information provided by employees or ex-employees to or for the purpose of being placed before a lawyer.”^[5]

Accordingly, RBS’s claim to LAP failed.

Lawyers’ Working Papers Privilege

Under English law, lawyers’ working papers can be privileged from disclosure if their disclosure would give the recipient a “clue as to the advice which had been given by the solicitor and…the benefit of the [solicitor’s] professional opinion.”^[6]

RBS argued that lawyers’ working papers privilege applied because: (1) the Interview Notes (except for those relating to interviews conducted by RBS’s non-lawyer employees) had been prepared by RBS’s external counsel; (2) the purpose of the Interview Notes was to create documents which would assist in providing legal advice to RBS, rather than a verbatim transcript of the interviews; (3) the Interview Notes evidenced external counsel’s impressions with a view to advising RBS; (4) most of the Interview Notes stated that they reflected external counsel’s mental impressions; and (5) the Interview Notes reflected external counsel’s train of inquiry in preparing for the interviews.

Rejecting RBS’s claim to lawyers’ working papers privilege, the Court found that it was not enough for the Interview Notes to reflect counsel’s “train of inquiry.” In order to substantiate a claim for this privilege, RBS would have had to demonstrate that the Interview Notes contained counsel’s legal analysis or input, or that they could reveal the general trend of counsel’s advice.

The Applicable Law

RBS also argued that, because the interviews were largely conducted by or on behalf of US counsel as a result of the SEC’s subpoenas, and the Interview Notes came into existence as a result of those subpoenas and instructions, US, not English, law of privilege was the applicable law.

The Court rejected this novel argument, confirming that whether a document is privileged from inspection in the English Courts, is a question of English, not foreign law.

The Court also refused to exercise its discretion to prevent production or inspection of the Interview Notes.

Conclusions

It is notable that the Court not only acknowledged that Three Rivers (No. 5) has “attracted disquiet and not a little academic criticism” but also that there was force in those criticisms and that, in a suitable case, the UK Supreme Court will have to revisit the Three Rivers (No. 5) decision. The Court also recognised that courts in other common law jurisdictions^[7] have pointedly rejected Three Rivers (No. 5)’s narrow interpretation of who is the client for the purposes of LAP.

The RBS Rights Issue Litigation does not break new ground, but affirms and restates the current law in relation to LAP as set out in Three Rivers (No. 5). Unless they are modified, these decisions raise serious questions for clients and lawyers alike as to the appropriate approach when conducting internal investigations before litigation is in contemplation and so before any litigation privilege can arise^[8]. Whether there is any such alternative approach which is practical, effective and cost efficient remains to be seen.

This is particularly concerning given that, in recent years, the UK Serious Fraud Office (“SFO”) and the Financial Conduct Authority have increasingly disputed, and sought to challenge, claims to privilege by companies under investigation. The SFO has, in particular, been vocal in criticising as un-cooperative those companies who seek to resist disclosure of interview notes and summaries on the grounds of privilege.

The Court has since granted RBS a “leapfrog” certificate to apply for permission to appeal directly to the UK Supreme Court, rather than to the CoA. If permission to appeal is granted, the Supreme Court will have the opportunity to clarify the issue and, if it chooses to do so, hopefully it will enable corporates to protect interview notes and summaries, prepared by counsel in the context of internal investigations, from disclosure in any future litigation as well as ensuring that they can obtain legal advice in a timely manner.