Guernsey: How To Maintain Privilege In Internal Investigations

Last Updated: 1 August 2017
Article by Christopher Edwards

Most Read Contributor in Guernsey, July 2017

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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.