Privilege and the “client” in The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) – UK and US perspectives

Publication July 2017


Introduction

In a judgment handed down in December 2016, the English High Court has held that notes of interviews with current and former employees of a corporation as part of an investigation by in-house and external lawyers are not privileged as a matter of English law. The Court also confirmed that English privilege rules should be applied in cases before the English court so that, even though the interview notes were likely to have been privileged as a matter of US law, they were not privileged as a matter of English law.

This decision does not change the position under English law, but it nevertheless provides an important illustration of legal advice privilege under English law and, in particular, the need to appreciate who is the “client” on an ongoing basis. In addition, the case provides a stark reminder of the complexities surrounding privilege in cross-border litigation and investigations and the need to consider the privilege rules not only in the jurisdiction in which a party is currently engaged, but also the jurisdictions where proceedings or regulatory investigations may subsequently be commenced.

Background

This issue arose within proceedings known as The RBS Rights Issue Litigation in which the claimant shareholders of the Royal Bank of Scotland (RBS) are seeking to recover investment losses incurred further to the collapse of RBS shares on the grounds that the prospectus for the 2008 rights issue of shares in RBS was not accurate or complete. As part of this ongoing litigation the claimants sought disclosure and inspection of interview notes in relation to two internal investigations involving interviews by or on behalf of RBS (involving in-house, US and UK lawyers, as well as the RBS Group Secretariat (the Secretariat), consisting of non-lawyers) with current and former employees. One of these investigations had arisen in response to subpoenas by the US Securities and Exchange Commission relating to RBS’s sub-prime exposures.

RBS attempted to resist disclosure of the interview notes on the grounds that:

  • the interview notes were subject to legal advice privilege;
  • apart from the interview notes taken by the Secretariat, the interview notes constituted lawyers’ privileged working papers;
  • the English court should apply US federal law under which the interview notes were said to be privileged;
  • even if English law governs the question of privilege, the English court should exercise its discretion to withhold the documents on the basis that they were privileged under US law.

Legal advice privilege

The leading English authority on legal advice privilege is the Court of Appeal’s decision Three Rivers (No 5)1, where it was held that the “client” for the purposes of legal advice privilege was the three-man Bingham Inquiry Unit set up to deal with certain legal issues and that information gathered from employees outside this unit was no different for legal advice privilege purposes from information obtained from third parties.

In the present case, RBS claimed that the interview notes were protected by legal advice privilege on the basis that they recorded a communication between a lawyer and a person authorised by RBS (including current and former employees) to communicate with the lawyers for the purpose of RBS seeking legal advice. In what the Court considered to be “the fundamental and most powerful part of RBS’s case”, RBS submitted that it was not contrary to Three Rivers (No 5) 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 communication (including any factual information) should be treated as if the individual were part or an emanation of the client and protected by legal advice privilege accordingly. RBS contended that such treatment is necessary in order to fulfil the purpose of the protection afforded by legal advice privilege.  Further, RBS sought to distinguish Three Rivers (No 5) on the basis that it concerned “internal” preparatory documents created by employees to send to the lawyers and not direct communications between such employees and the lawyers. RBS also pointed to academic criticism of the case and its disapproval in other jurisdictions, in particular the Court of Appeal in Singapore.

The claimants countered that legal advice privilege only covers communications between a client (narrowly defined) and his lawyer for the purpose of the lawyer giving and that client seeking or receiving legal advice and that the gathering and communication of information by a person who is not strictly the client (even if they are an employee of the client) is not protected by privilege even if carried out at the request of the client and/or its lawyers.

The High Court acknowledged that Three Rivers (No 5) was a “controversial decision”, but found that it was nevertheless bound by it. The Court held that although the interview notes recorded direct communications with RBS’s lawyers, they comprised information gathered from employees or former employees preparatory to and for the purpose of enabling RBS, through its directors or other persons authorised to do so on its behalf, to seek and receive legal advice.

In other words, the RBS employees and former employees who were interviewed by the legal team did not fall within the narrow definition of “client” as defined in Three Rivers (No 5) and therefore the communications were not covered by legal advice privilege.

Lawyers’ working papers

It is generally accepted under English law that lawyers’ working papers are privileged under the legal professional privilege doctrine on the basis that they provide a “clue” to the lawyers’ advice or reveal the “trend of advice” which the lawyer is giving. For this reason, it may be difficult to show that verbatim transcripts of non-privileged interviews are privileged, even if the notes are taken by a lawyer. The Court noted, in this regard, that an interview note which recorded the lawyer’s own thoughts and comments on what he was recording with a view to advising the client would almost certainly be privileged.

However, the Court considered that the question was ultimately evidential and, on the facts, RBS’s evidence did not go far enough to substantiate the claim to privilege on the basis of lawyers’ working papers. It was not enough simply to say that the interview notes were not verbatim and that therefore they must contain legal input or selection justifying the claim to privilege. Although the interview notes were said to reflect the lawyers’ mental impressions, this was not supported by any assertion that the notes did in fact contain material that would or could reveal the trend of the legal advice – and the Court did not consider that it would be proportionate or appropriate in the circumstances to permit RBS to supplement its evidence given that the matter had already been argued out.

Applicable law

RBS contended that US federal law should apply on the basis that it was the jurisdiction with which the engagement or instructions, pursuant to which the communications arose and the interview notes came into question, was most closely connected.

The Court was not unsympathetic to RBS’s submissions, but it held that there was no sufficient basis for disturbing what was considered to be the well-established convention or practice of the English court of applying the law of the forum to determine whether or not a particular communication or document was privileged – in this case, English law.

Discretion

The Court recognised that it had a discretion whether or not to order production where a party resisted disclosure of documents, but the Court made clear that it was likely to lean heavily in favour of disclosure unless there were “compelling grounds” or a “special case” to take a different approach (such as the risk of violence, intimidation, interference with witnesses or destruction of evidence). It did not find such grounds in this case.

What does this mean in practice?

The decision is significant for all corporates involved in cross-border investigations and litigation. It is an important reminder that under English law what is privileged in one jurisdiction will not necessarily be privileged in another, and that the status of interview notes and other potentially sensitive documents will ultimately depend on the law of the forum where the question of privilege is being addressed.

It confirms that, in cases involving legal advice privilege, English courts of first instance will continue to be bound by the narrow definition of “client” in the Three Rivers (No 5) decision of the Court of Appeal which, for now, remains good law – albeit that the judge in this case seemed to have sympathy with RBS’s position and acknowledged that Three Rivers (No 5) is controversial.

For now, therefore, it remains vital to consider carefully who the “client” is in each case both at the outset and as the matter develops. Indeed, the judge also noted that in a corporate context it may be that only individuals singly or together constituting part of the “directing mind and will” of the corporation can be treated as being, or being a qualifying emanation of, the “client” for the purposes of legal advice privilege. However, as RBS submitted, this would restrict the scope of legal advice privilege available to corporate bodies yet further and go beyond the findings in Three Rivers (No 5). It would also introduce a significant burden on lawyers to ensure that they took their instructions from and gave their advice only to those individuals constituting the “directing mind and will” of the corporate client, with ample scope for dispute around who those individuals actually were. In practice, it only re-emphasises the need for careful scrutiny of the position on an ongoing basis.

On the other hand, some reassurance can perhaps be taken from the judge’s view that interview notes recording the lawyer’s own thoughts and comments with a view to advising the client would almost certainly be privileged – provided that, when challenged, a party can demonstrate some attribute of or addition to the interview notes which distinguishes them from verbatim transcripts by revealing or at least giving a clue as to the trend of legal advice being given.

In any event, the judge made clear that it “may be that in a suitable case the Supreme Court will have to revisit the decision”. However, although the judge granted RBS permission to appeal directly to the Supreme Court, rather than having to go through the Court of Appeal, there are no longer plans to appeal this case to the Supreme Court. It therefore remains to be seen whether there will be another opportunity for Three Rivers (No 5) to be overturned and a wider definition of “client” for the purposes of legal advice privilege to prevail.

Although RBS did not claim litigation privilege at first instance, it would also be helpful for the Supreme Court to address and provide direction on when an investigation becomes sufficiently adversarial or confrontational to constitute litigation for litigation privilege purposes, as this also remains a grey area under English law.

Until then, English privilege law remains unchanged.

The US perspective

Practitioners who are accustomed to the jurisprudence surrounding privilege under US law may be surprised by the limitations that the English courts in the RBS and Three Rivers (No 5) decisions placed on the application of privilege.

Notes and Memoranda of Witness Interviews

US courts have not been as restrictive as the English courts in their definition of the “client” in the corporate context. In Upjohn Co. v. United States, the US Supreme Court made clear that the corporate “client” can extend beyond the control group (i.e. those individuals responsible for giving instructions to the lawyer and receiving the lawyer’s advice) so as to provide attorney-client privilege protection to a lawyer’s communications with employees who are not members of the control group.  Specifically, the court held that employee communications are protected by the corporate privilege if (1) they are made to counsel at the direction of company superiors; (2) they concern matters within the scope of the employees’ in-house duties; (3) the information is not available from upper-level management; (4) the employee was made aware that he or she was being questioned in order for the company to receive legal advice; and (5) the communication was ordered to be kept confidential and remained confidential.

Given that the attorney-client privilege in the United States extends to employees who fall outside of the control group, the contents of interviews with those employees will typically be protected by the privilege. Companies have, therefore, been successful in resisting disclosure of interview memoranda on the basis of attorney-client privilege with such individuals. Companies have also been successful in resisting disclosure of interview memoranda under the work product doctrine.

The courts in the United States have been somewhat divided about whether the attorney-client privilege in the corporate context extends to communications with former employees.2  While a number of courts have found that communications with former employees are privileged so long as the communication is limited to knowledge that the former employee acquired during the course of his or her employment, other courts have found that counsel’s communications with a former employee of the client corporation should be treated no differently from communications with any other third-party fact witnesses. The takeaway, though, is that attorneys’ notes of communications with former employees are likely to receive less protection before the US courts than notes of communications with current employees.

Applicable Privilege Law

US courts may have taken a different approach to the applicable privilege law than the English court in the RBS case.  Unlike in the RBS case, a US federal court would likely not apply the law of the forum in order to determine issues of privilege.  Instead, a US federal court would be more likely to apply the law of the jurisdiction in which the communication was made, provided that that jurisdiction had the most direct and compelling interest in the question and that its law was not contrary to the public policy of the forum. In the case of the notes at issue in the RBS case, a US court would have been more likely to agree with RBS that it should apply US privilege law given the interviews’ connection with a US investigation and the fact that a number of the interviews occurred in the United States.

Key practical considerations

The RBS case highlights the following key takeaways for practitioners involved in an investigation:

  • Where English law may apply to the investigation, carefully consider who the “client” would be, as communications with individuals other than those constituting the “client” may ultimately be disclosable.
  • Consider whether claims or investigations could arise in jurisdictions other than that in which the original investigation is occurring. If cross-border conduct is involved, other jurisdictions may apply their own privilege law to the relevant claim/investigation material. If privilege does not apply in these other jurisdictions, the material may have to be disclosed, which may affect whether or not privilege can continue to be claimed in other jurisdictions.
  • Remember that it will be more difficult to withhold lawyers’ notes of interviews with individuals who do not form part of the “client”. In the US, for work product purposes, interview notes should not merely state that they contain attorney mental impressions and advice but should appreciably contain such impressions and advice. In addition, if the privilege is challenged, the practitioner should be able generically to describe in sufficient detail the types of observations and impressions contained within the document and how the attorney’s thoughts, impressions, or trend of advice could be deduced by the content or omission of content from the writing. In the UK, such interview notes will only be privileged so long as they give a “clue” as to the lawyers’ advice or reveal the “trend of advice” which the lawyer is giving. Again, it will not be enough to argue that the notes reflect the lawyer’s mental impressions: it must be possible to assert that the notes did in fact contain material that would or could reveal the trend of the legal advice.


Footnotes

1

Three Rivers District Council and others v Governor and Company of the Bank of England (No 5) [2003] QB 1556

2

In his concurrence in Upjohn, Chief Justice Burger offered his opinion that "a communication is privileged when, as here, an employee or former employee speaks at the direction of the management with an attorney regarding conduct or proposed conduct within the scope of employment."


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