Privilege update April 2016

Privilege continues to be a hot topic, prompting Lord Neuberger to recently reflect on the difficulties lawyers have when advising on the issue in the context of internal investigations:

"So often, she is faced with a problem which not only is hard to answer and requires a quick answer, but is one to which there is no safe answer: go wrong one way, and she will be advising her client to break the law; go wrong the other way, and she will be unnecessarily disadvantaging her client."¹

The difficulties encountered are illustrated by recent decisions.

Property Alliance Group Limited v Royal Bank of Scotland hearings –November 2015

The ongoing interest rate swap litigation between Property Alliance Group Limited (PAG) and RBS continues to generate interesting decisions on privilege.

Property Alliance Group Limited v The Royal Bank of Scotland Plc [2015] EWHC 3187 (Ch)

This decision concerned whether legal advice privilege had properly been claimed over certain high-level documents prepared in the context of regulatory investigations. It focused on documents produced by the bank's external lawyers for the group within the bank tasked with overseeing the investigations and liaising with its external lawyers (the Executive Steering Group (ESG)).

The two categories of documents in question were:

1. Confidential memoranda which formed the basis of discussions between the lawyers and the ESG, and were updated continuously to inform the ESG of the progress of the regulatory investigations.
2. Confidential summary minutes of the discussions between the ESG members and its legal advisers at the ESG meetings.

The court acknowledged that lawyers tend to offer clients a selection of general business services as well as legal advice. It followed that not all communications between a lawyer and his client would be for the purpose of legal advice.

However, documents will be privileged if they are part of a necessary continuum of communication and meetings between the lawyer and his client for the purpose of legal advice. A distinction was drawn between documents produced by lawyers for their clients for the purpose of legal advice and discussion,and those produced by a lawyer in an administrative support role. The latter category would not be privileged. It was necessary that the lawyers were engaged in a "relevant legal context".

The Court held that the external lawyers were engaged by the bank in a relevant legal context, and the documents produced were part of the continuum of communication. They kept both parties informed of the developments in the regulatory investigations and formed the basis of discussions between lawyers and the bank so that "advice may be sought and given as required". The category 2 documents all had substantial legal content and the lawyers led the discussions; the documents were an integral part of their provision of legal advice and were therefore privileged.

It did not matter that reference was made to publicly available information or dealings with regulators. If the document was part of the continuum of communications, it was privileged in its entirety.

As highlighted by the Court, there is a clear public interest in regulatory investigations being conducted efficiently and in accordance with the law. This requires lawyers to be able to communicate freely with their clients so that "advice may be sought and given as required" and to provide them with accurate records of discussions and decisions taken. Claiming privilege over the documents prepared for the bank by its lawyers fell within that policy. Lawyers need to be able to give their clients candid factual briefings and legal advice, knowing that such communications would not be disclosed without the client's consent. The decision confirms that the doctrine of legal advice privilege is not restricted to actual legal advice,including in the context of a regulatory investigation.

The decision is available on Bailii.

Property Alliance Group Limited v The Royal Bank of Scotland Plc [2015] EWHC 3341 (Ch)

The second decision in the case related to litigation privilege.

The managing director of PAG arranged meetings with the bank's former employees intending to gather evidence for the litigation. The former employees understood that the meetings were to discuss a future business relationship. PAG subsequently claimed litigation privilege over the recordings. The Court held that litigation privilege could not apply to a verbatim recording of a conversation made for use in litigation unless the conversation itself was privileged. Whether the conversation was privileged or not depended on the dominant purpose of the meetings arranged by the PAG employee. The bank argued that its employees understood the purpose to be a discussion of business prospects. PAG argued that the meeting was arranged for the purpose of collecting evidence for the litigation.

The Court held that the answer had to be arrived at objectively, taking into account all the evidence,including what the relevant parties claimed their intentions were. The PAG employee and bank ex employees had different purposes. This made it difficult to distil a dominant purpose.

Great importance was attached to the fact that the PAG employee had actively deceived the bank's ex employees. This meant that the fair and correct approach was to look at things from the perspective of the latter. Therefore, the dominant purpose of the meetings had not been gathering information for the litigation, and the recordings did not attract privilege.

The decision is available on Bailii.

SFO's process for quarantining privileged material is lawful

A challenge to the SFO was brought over their process for dealing with privileged material. The claim was that the SFO's procedure for dealing with potentially privileged material contained in various electronic devices seized during an investigation was unlawful.²

When the SFO seize a device, the contents are first loaded onto the SFO's Digital Review System, where the investigating team cannot access it. The case controller then requests search terms for identifying the privileged material from the owner or their lawyer.These terms are applied by a member of the Digital Review System team who is independent of the investigating team. Any results are isolated in a separate folder which is then reviewed by an independent lawyer. The investigating team is only given the material from this folder that the independent lawyer deems not privileged.

It was argued that this process was insufficient to guard against the risk that privileged material might be read by the investigating team. It was not enough to have an independent lawyer reviewing material:even the prior, and mechanical, step of isolating the files must be carried out by an independent third party.

The Court disagreed. The SFO's procedure sufficiently guarded against the risk of inadvertent disclosure of privileged material. It would be "too onerous a legal obligation" for the SFO, or another investigating authority, to require it to demonstrate that there was no risk of a breach of privilege. The possible risks of inadvertent or deliberate disclosure argued by the claimant's lawyers were "fanciful". The Court did not accept that the SFO's procedure should be judged"against the yardstick that either those in the IT department or investigating teams will act in bad faith", noting that "outside contractors would not obviously be less (or more) prone to acting improperly".

Although the Court's decision is unsurprising, it may not be the last challenge on privilege which regulators and prosecutors face. For their part, they complain about firms "ploughing up the crime scene" and"gaming the process". The issue of legal privilege is becoming an ever more important battlefield between regulators, prosecutors and those under investigation.

Waiver of legal advice privilege by way of witness statement – a warning

"As a consequence of the advice [the Claimants]received (in respect of which I am not waiving privilege), I agreed to… [the] settlement offer of £1.35 million."

This statement in the claimant's witness statement in a professional negligence claim against its former solicitors, gave rise to an interesting decision on waiver of legal advice privilege in witness statements.The issue of whether to refer to legal advice frequently gives rise to difficult privilege questions, and this decision highlights the risks of doing so.³

The defendant sought specific disclosure of legal advice in which, it argued, privilege had been waived because of the references to that advice in three witness statements. The legal advice included:

• all communications between the claimant and the barrister instructed in the underlying proceedings,including his advice on the merits and the documents based on which he formulated his advice;
• all communications between the claimant and the solicitors instructed in the underlying proceedings,including their advice on the merits; and
• all internal communications of the claimant relating to the underlying proceedings.

In each case, privilege was considered to have been waived even though each witness had expressly stated that by referring to the advice in his witness statement he was not waiving privilege. The extent to which privilege had been waived was for the court to determine.

Witness A had exhibited a letter to his witness statement which spoke (with hindsight) of the legal advice he had given as counsel at the time the underlying proceedings were settled (three years before). Privilege in that letter was clearly waived and the Court found that the defendant was further entitled to any contemporary record of the advice as to the merits of the settlement at the time it was agreed. Similarly, the advice of the solicitors in relation to the merits of settlement was to be disclosed. As the lawyer's advice was dependent on instructions, the defendant would also be entitled to these. Privilege in the advice given earlier in the underlying proceedings was not waived, however. The advice was not sequential and that given in earlier stages was divisible from advice given at a later stage as "the circumstances in which advice is sought or given" at different stages in litigation "may be quite different". This was not "cherry-picking".

Witness B had listed, as proof of the amount of management time expended on the underlying proceedings, communications between the claimant and its solicitors in a schedule to his witness statement. The Court found that, as a result, privilege in these documents had been waived. This was because details of the documents were submitted to"justify the detailed expenditure of management time",rather than simply to fix the dates on which management were engaged in the underlying proceedings.

The judgment serves as a reminder that, where references to privileged material cannot be avoided completely, it is best not to refer to privileged documents specifically, to avoid triggering specific disclosure requests.

Litigant in person's admissions without prejudice must be viewed "in the round"

The Court of Appeal has found that a litigant in person's compromising admissions to the opposing side's solicitor in a tenancy dispute were without prejudice discussions. The discussions, the Court held,must be regarded "objectively and in the round" and the only sensible explanation of the reason for the discussions was that the litigant in person (described as "an innocent abroad in litigation terms") was seeking a solution and end to the litigation.⁴

Companies' rights to privilege as against shareholders attaches only to documents connected to hostile proceedings

The general rule that a company may not assert privilege against its shareholders for advice paid for from company assets (and, as such, indirectly by the shareholders) was, the Court held, founded on the same principle which states that a trustee cannot assert privilege against beneficiaries where advice is paid for from trust assets. The Court then went on to examine the exception to this rule, which arises when the shareholders of a company are in dispute with the company. That exception is founded on the idea that the company has been caused to take advice because of actual, threatened or contemplated litigation and that it was that advice, connected to such proceedings,which attracted privilege. It was not correct to say that the exception arose when the interests of company and shareholder diverged and that all advice paid for by the company thereafter was not accessible to shareholders. Making the comparison with the trustee/beneficiary relationship, Nugee, J. commented that he did "not see why [a dispute between trustee and beneficiary] does or should prevent the beneficiary from seeing any other legal advice obtained by the trustee, for example in relation to powers of investment which … are part of the ordinary administration of the trust".⁵

1. Lord Neuberger's speech can be found on the Supreme Courtwebsite. Link to: https://www.supremecourt.uk/docs/speech-
   160309.pdf
2. R (on the application of Colin McKenzie) -v- Director of the SeriousFraud Office [2016] EWHC 102 (Admin).
3. Commodities Research Unit International (Holdings) Limited -v-Kind and Wood Mallesons LLP [2016] EWHC 63 (QB).
4. Suh and another -v- Mace (UK) Ltd [2016] EWCA Civ 4 (15 January2016).
5. Sharp and others -v- Blank and others [2015] EWHC 2681 (Ch).