UK: When Will Internal Investigations Be Protected By Legal Advice Privilege?

Last Updated: 24 January 2017
Article by James Sidwell

The recent decision in The RBS Rights Issue Litigation, Re, has affirmed the restrictive view of 'the client' espoused in the Court of Appeal's decision in Three Rivers No. 5, and is important reading in particular for those who deal with corporate investigations.

Three Rivers No 5 and the law on legal advice privilege

In 2003, the Court of Appeal ruled on the extent of legal advice privilege ("LAP") in Three Rivers (No 5) In that case, the Bank of England had created an internal unit to deal with the Bingham Inquiry into the Bank's dealings with the Bank of Credit and Commerce International prior to the latter's collapse. That unit had been established to deal with the inquiry, to gather information from Bank of England employees, and to seek and receive legal advice from external lawyers. The judgment concerned the Bank's claim to LAP in documents created by bank employees and passed to the unit.

The Court of Appeal's decision in Three Rivers No 5 was, to put it very briefly, that in the case of a corporate institution, LAP is afforded only to communications between those authorised by the corporation to seek legal advice (in this case the unit) and its lawyers, and made for the purpose of seeking or receiving legal advice. The Bank was not therefore entitled to LAP in documents passing between employees and the unit, even if they had been created with a view to seeking external legal advice on them.   

For the last 13 years, that decision has stood as the leading authority on LAP under English law, although it has been trenchantly criticised by academics and practitioners for its restrictive approach to defining 'the client', and disapproved by judges in other jurisdictions.

There have however been two recent decisions which affirm this restrictive approach to LAP - first in Astex Therapeutics Ltd v Astrazeneca [2016] EWHC 2759 (Ch) and now in The RBS Rights Issue Litigation, Re [2016] EWHC 3161 (Ch).

The RBS Litigation  

The RBS Litigation comprises various actions under a Group Litigation Order under which shareholders in RBS seek to recover investment losses arising out of an issue of RBS shares in 2008 and the subsequent collapse of the shares' value.

The claimants sought disclosure of records of interviews which had been conducted by or on behalf of RBS with a total of 124 employees and former employees, for the purposes of two internal investigations undertaken by RBS. The majority of the interview notes had been prepared either by RBS's in-house lawyers, or by external lawyers. 

RBS resisted disclosure of the interview notes on the basis that they were subject to legal advice privilege; alternatively that the majority were privileged by reason of being lawyers' working papers. RBS made no claim to litigation privilege, as the interview notes had not been made in contemplation of litigation.

RBS did not argue that legal advice was actually sought or given in the interview notes, but rather that the notes contained information which was being gathered from former and current employees under the direction of RBS's lawyers to enable RBS to seek legal advice from its external lawyers.

RBS sought to distinguish its case from Three Rivers No 5 by highlighting first that the employees in question had communicated directly with lawyers, and second that those employees had been authorised to do so by the RBS, for the purposes of RBS seeking legal advice.  RBS contended that where an employee was authorised to communicate with a lawyer for the purpose of his or her employer seeking legal advice, that communication is privileged, regardless of whether that communication consists of instructions to the lawyer or only of information.

Decision

Whilst recognising some force in criticisms of Three Rivers No 5, the judge, Hildyard J, said "there can be no real doubt as to the present state of the law: Three Rivers No 5 confines legal advice privilege to communications between lawyer and his client". This was, he felt, a rule of general application, not confined to the facts in Three Rivers, as confirmed by a line of cases which have followed it since (including the decision of Chief Master Marsh in Astex, which was handed down on the second day of the RBS hearing).

The key question for the judge was therefore whether the fact that the employees had been authorised to communicate with RBS's lawyers meant they could be deemed 'the client', (or a qualifying emanation of the client) such that the communication of purely factual information by them would attract LAP.

He noted the recent decision in Astex, and in particular Chief Master Marsh's (obiter) comment in that case that employees who merely provide factual information to lawyers are unlikely to be the client for the purposes of Three Rivers No 5.

Hildyard J agreed with this analysis, concluding that although the interview notes recorded direct communications between authorised RBS employees and RBS's lawyers, "they comprised information from current and former employees 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". Since the individuals interviewed were providing information only and were not seeking or receiving legal advice for themselves or on behalf of RBS (nor were they authorised to), their communications were not subject to LAP.

RBS's claim to LAP in the interview notes therefore failed.

Lawyers' working papers

RBS's alternative contention was that the majority of the interview notes were subject to legal professional privilege by reason of being lawyers' working papers. The judge's starting point here was that he had already concluded that RBS was not entitled to LAP in the interview notes. It followed that the interviews themselves were not privileged, and so a verbatim transcript of the interviews would not be privileged either.

In order to make out a claim for privilege in the notes on the basis that they were lawyers' working papers, RBS would therefore have to demonstrate that the interview notes in some way went beyond a mere transcript of the interview so as to reveal the trend of legal advice being given - for instance by recording the lawyer note-taker's own thoughts and comments on what was being recorded, with a view to advising the bank.

The judge found that RBS's evidence on this point was conclusory in nature and insufficient to substantiate a claim to privilege on the basis of lawyers' working papers. RBS seemed to rely on the fact that the notes were not merely a verbatim transcript as making out their claim, but did not go far enough to satisfy the court that the notes would actually reveal the advice given to the bank (as opposed simply to the interviewer's train of enquiry). This claim to privilege therefore also failed.

Potential appeal

In his judgment, Hildyard J recognised criticism of Three Rivers No 5 and suggested that the Supreme Court may need to revisit it in 'a suitable case'. We understand that RBS is seeking to appeal this decision, and so this may well be that case. Pending any appellate decision though, there are some key points for organisations to note.    

Points to remember

  • Communications between an employee and lawyer will not attract legal advice privilege, even if the communication is authorised by the employer, unless that employee is acting in the place of 'client' for the purposes of seeking or receiving legal advice.
  • The courts take a restrictive approach to identifying the client for these purposes - it needs to be someone properly able to seek or receive legal advice on behalf of the organisation, and it is likely that only a relatively small group of employees in any organisation will qualify.
  • Where organisations undertake internal investigations (and litigation is not in prospect), they should therefore be aware that fact-finding communications between employees and lawyers (whether internal or external) may not be privileged from disclosure in any subsequent litigation. The simple involvement of lawyers in the review does not clothe the review in privilege. Organisations should therefore consider carefully the extent to which notes of such investigations are made.
  • If litigation is in prospect however, then fact-finding investigations may attract litigation privilege if it can be shown that communications or documents were made for the dominant purpose of that litigation.       
  • Lawyers seeking to claim privilege in their working papers have a high burden to discharge in proving not merely that they contain lawyer's notes, but that those notes risk revealing the trend of advice given to the client.  

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.

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