As regulatory investigations in the financial services sector increase, the lines between regulatory and civil proceedings become more blurred and complex to manage. In particular, disputes over the assertion, in civil proceedings, of privilege in documents created in response to regulatory enquiries are growing increasingly common in the UK courts.

In Property Alliance Group Ltd ("PAG") v Royal Bank of Scotland ("RBS"), PAG alleged that RBS had induced it to enter into interest rate swaps by making misrepresentations about LIBOR. In the course of proceedings, PAG sought disclosure of various documents associated with an earlier FCA investigation into allegations of LIBOR manipulation by RBS, in respect of which RBS had reached a publicised settlement with the FCA. RBS asserted that the documents were privileged and objected to their inspection.

The Court considered RBS's various assertions of privilege and held:

  • The contents of documents that had been produced to/by an internal RBS team set up to deal with the FCA investigation, and over which RBS asserted legal advice privilege, had not been properly specified. It was therefore not possible for the court to reach a proper understanding of the basis on which the claim to legal advice privilege was made. The practical approach was for the court to inspect these documents before coming to a final view
  • The Judge concluded that without prejudice privilege does apply in respect of communications that were part of genuine settlement discussions with the FCA, analogous to but not the same as the right that applies in civil proceedings (so that it does not for example, prevent the FCA from acting on information received in those discussions). The issuance of a Final Notice did not result in that right being lost. However, the judge held that, because of the way RBS had put its substantive case (it had positively relied in its pleadings on omissions in the FCA's findings as indicating the limits of its misconduct) it could no longer maintain a claim to privilege in respect of these documents, as the basis of the Final Notice was put in issue by RBS. PAG was therefore entitled to inspect them
  • In respect of certain other documents, PAG contended that legal privilege had been lost because they had been shown or handed over to regulators. RBS argued to the contrary on the basis that they were provided to the regulators on a confidential "non-waiver" basis, although this was subject to carve-outs to preserve the right of the regulator to make disclosures in furtherance of its statutory duties. The Judge found that RBS were entitled to maintain privilege on the basis of limited waiver. The fact that the regulator could publish the information made no difference if that had not in fact occurred

This decision is welcome confirmation that "without prejudice" privilege does apply to settlement negotiations with the FCA and other regulators, and that the principle of limited waiver can apply to disclosure to regulators. However, issues of privilege and what might be disclosed in respect of the regulatory proceedings in a civil claim, and vice versa, remain complex. It will continue to be important to bear in mind that anything produced in the context of one set of proceedings may be seen in the other when, for example, creating documents.

RBS has been granted permission to appeal the decision, and it will be interesting to see what approach the Court of Appeal now takes.

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