Guernsey: How To Maintain Privilege In Internal Investigations

Last Updated: 1 August 2017
Article by Christopher Edwards

Most Read Contributor in Guernsey, November 2018

Mourant Ozannes Partner Christopher Edwards and Counsel Tim Richards discuss the management of internal investigations, including the trouble that financial firms may have when maintaining claims to privilege over documents they produce.



One of the first steps which a company may take when faced with a regulatory issue is to embark on an internal investigation in order to understand what issues it is facing and how best to deal with them. Although that process is often ultimately very helpful, the manner in which that investigation is conducted is very often given far less thought than it deserves.

The investigative process, if undertaken in the frank and honest manner which it requires, can produce material that the company would rather not become available to a regulator, much less to members of the public. It is sometimes possible to avoid that outcome by claiming legal professional privilege over those documents. The underlying purpose of legal professional privilege is to allow unfettered access to a lawyer's professional skill and judgment and it most commonly arises in the context of the giving of legal advice (legal advice privilege) or litigation (litigation privilege). However, unless that issue is properly considered at the outset (rather than merely at the conclusion) then a belated attempt to cast a cloak of privilege over documents generated during an investigation can lead to unhappy results. Recent court decisions in England and Jersey have highlighted the difficulties that companies face when maintaining legal professional privilege over documents produced by internal investigations.

Legal advice privilege – who is the 'client'?

Where legal advice privilege applies, it is important for the firm in question to keep asking itself who the 'client' is. The Court of Appeal in Three Rivers District Council and others v Governor and Company of the Bank of England (no 5) [2003] QB1556 held that the 'client' for the purposes of legal advice privilege was a small team set up to deal with certain legal issues. Any information gathering undertaken by employees from outside this unit was no different, for the purpose of assessing whether legal advice privilege applied, to information obtained from outside third parties. In other words, legal advice privilege would only apply to communications between a lawyer and the small group of employees actually charged with instructing the lawyers (which the court defined as the 'client'). This meant that the information that the employees outside the unit had obtained was not privileged and the authorities could require the company to disclose it - a most unhappy outcome.

The same issue reached the English courts again in the context of proceedings known as the RBS Rights Issue Litigation [2016] EWHC 3161. As part of some continuing litigation, the claimants sought the disclosure of Royal Bank of Scotland interview notes in relation to two internal investigations. Those interviews involved in-house American and British lawyers as well as the RBS Group Secretariat which contained no lawyers. Although the English High Court acknowledged that Three Rivers was a "controversial decision," it nevertheless felt bound by it. Although the interview notes recorded direct communications with RBS' lawyers, they contained information gathered from employees or former employees for the purposes of enabling RBS to seek and receive legal advice. Legal advice privilege did not extend to information provided by employees and ex-employees to or for the purpose of being placed before a lawyer. It is worth noting that although a verbatim note of non-privileged interviews would not be privileged, the court held that an interview note that included a lawyer's thoughts or comments on what he was recording with a view to advising the client would be. However, the court said that on the facts of the case, it was not enough for RBS to say that the interview notes were not verbatim and therefore must "contain legal input or selection justifying a claim to privilege." Again, this meant that the authorities would be able to require RBS to disclose interview notes which it might have thought would remain confidential to persons who were suing RBS.

In the light of Three Rivers and the RBS Rights Issue cases, legal advice privilege probably does not cover internal documents generated by a firm's employees, even if they are required to provide information to lawyers to obtain legal advice. This issue, however, has yet to come before the Guernsey courts and other common-law jurisdictions have specifically declined to follow English law on this point (see, for example, the Hong Kong Court of Appeal decision in CITIC Pacific Limited v Secretary of Justice and Commissioner for the Police [2015] HKEC 1263). It does, however, show us that it is necessary for financial firms to structure any interviews (and the gathering of information in general) carefully. It is important to consider at the outset who should undertake them and how they should be recorded (and by whom) in order to ensure that the interview notes and documents that the investigation generates are subject to privilege and there is no requirement to disclose them. That can be hard to do in the real world as firms often want to progress matters swiftly, but the consequences of failing to take the time to do so can be dire.

Litigation privilege – what is litigation?

A company that tries to involve litigation privilege may also have problems. In the Jersey case of Smith v SWM Ltd [2017] JRC026, a Jersey master held that a report which the Jersey Financial Services Commission (JFSC) had told SWM Ltd to obtain about the way it had been conducting its investment business was not subject to legal professional privilege. That meant that the report was disclosable in an action by one of SWM's clients in relation to that business. The Master held that the exercise of powers by a regulator, such as the JFSC, was not adversarial. The dominant purpose of any report obtained by the JFSC was to allow it to discharge its regulatory responsibilities. The Master accepted that his conclusions implied that a regulated entity might receive a complaint about the services it had performed, and that the complaint might also have been lodged with the JFSC, and that such a complaint could lead to the JFSC exercising regulatory powers. In doing so, he said that the regulator might demand the production of a report which the regulated entity would then have to hand over if the complainant were to persue it in the courts later. Such a report is likely to be a fact-finding exercise and an assessment of whether or not the firm has met regulatory standards. As such, it would not of itself be subject to legal professional privilege. This applies even if the regulated entity can establish that legal proceedings by a former client or clients are "reasonably in contemplation." The key point is that the dominant purpose of the exercise by the JFSC of its regulatory powers was not the production of documents for use in anticipated litigation but rather a response to the exercise of those powers.

The recent English case of Serious Fraud Office v Eurasian Natural Resources Corporation [2017] EWHC 1017(QB) also highlights the extent to which documents produced by internal investigations may not be subject to privilege. In 2011 a tipster at the Eurasian Natural Resources Corporation made various allegations of fraud and bribery in relation to its businesses in Kazakhstan and Africa. ENRC then embarked on an internal investigation and at the same time reported the occurrence to the SFO. There were various follow-up meetings between the ENRC and the SFO, after which the SFO began its own criminal investigation of the ENRC in 2013. Later, the SFO asked the ENRC to hand over internal documents that it had created during its internal investigations. The ENRC refused, claiming legal advice privilege in relation to a small subset of documents and litigation privilege in relation to most of the remainder. A judgment handed down in early May 2017 refused the claims for litigation privilege and made a number of findings, including the following.

  • A raid by the SFO and the processes set in train by such a raid (such as an SFO investigation) does not constitute adversarial litigation.
  • The reasonable anticipation of a criminal investigation does not amount to a reasonable anticipation of litigation.
  • Litigation privilege applies only to documents prepared for the sole or dominant purpose of conducting litigation (and not to documents produced with the purpose of enabling advice to be taken in connection with anticipated litigation).
  • Litigation privilege does not apply to documents created with the purpose of obtaining advice about how to avoid contemplated litigation.

It must be emphasised that the ENRC decision was in the context of a criminal investigation that the SFO had begun. The judge's findings, however, are both surprising and controversial, not least because their effect is to ensure that litigation privilege in England may arise only in limited circumstances in the criminal context, and far more rarely than in a civil context. The Guernsey Royal Court is not bound by the ENRC decision and the ENRC itself has sought leave to appeal against the English Court of Appeal's decision.

In conclusion, all four cases serve to highlight the difficulties a financial firm may face in maintaining claims to privilege over documentation produced by internal investigations. It can avoid many of these pitfalls by instructing external lawyers at an early stage so that, where possible, it can take effective steps to preserve privilege. It should take the following practical steps to preserve privilege.

  • Set up a protocol, at an early stage, for the undertaking of any investigation, establishing a working group with clearly defined responsibilities to undertake that investigation.
  • Limit the dissemination of legal advice as far as possible. This should, for example, help to keep things confidential.
  • Ask clients, if possible, not to add comments on any legal advice received (because such comments may not be privileged).  
  • Mark any privileged communications "privileged" and be clear about it. The presence or absence of such a label is not determinative, but it makes it clear to the recipient that the communication is supposed to be privileged and may add weight to an argument that in fact it is.

A failure to take these steps, or at least to consider them, can have unfortunate consequences.

An original version of this article was first published in Compliance Matters, July 2017.



For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

www.guernseyfinance.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions