The End of a Privileged Existence for Internal Investigations?

By 22nd December 2016General News
investigations

In the context of ongoing high-profile challenges, by regulators and prosecutors alike, to the status of categories of documents such as lawyer-drafted interview memoranda, the judgment in Re The RBS Issue Litigation [2016] EWHC 3161 (Ch) could represent the start of a fundamental change in how internal investigations are conducted.

What is the Headline?

On 8 December 2016 the High Court, through Mr Justice Hilyard, ruled that notes, transcripts, and records of interviews prepared by lawyers during an internal investigation are not necessarily covered by legal advice privilege. In the process, the manner in which internal investigations are conducted and/or recorded may have been changed forever.

The Background

This ruling arose from litigation brought by shareholders to recover substantial investment losses incurred by RBS. The shareholders claimed that they were entitled to inspect documentation including interview notes prepared by both external lawyers and by RBS’s in-house legal team. RBS resisted, relying legal advice privilege.

What are the Extremities of Legal Advice Privilege?

The starting point for the analysis was that, as a general rule, legal advice privilege protects communications between client and legal advisor that were created for the purposes of giving, or receiving, legal advice – it does not extend to communications involving a third party.

Three Rivers (No 5) [2003] QB 1556 dictates that, for corporate clients, the term ‘client’ in relation to legal advice privilege should be narrowly interpreted to mean only those employees who are authorised to seek and receive legal advice from the company’s lawyers.

Whilst accepting that this was the law, in the current case, RBS sought to argue that the employees being interviewed were imparting factual information to the company’s lawyers in order to enable the company to give, or receive, legal advice with the express authority of the company. For this reason, RBS argued that the interviewees were part of ‘the client’, and that the resulting records of their communications were protected by legal advice privilege.

The Court rejected this submission, following Three Rivers (No 5), stating that the interviewees had provided information in their capacity as employees, and that this was simply information gathering “…preparatory to and 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”.

Corporate ‘Clients’ for the Purposes of Legal Advice Privilege

In addition to the reasoning above, Hilyard J suggested that it was likely that the law was that “…in a corporate context, only individuals singly or together constituting part of the directing mind and will of the corporation can be treated for the purpose of legal advice privilege as being or being a qualifying emanation of, the ‘client’”. In light of the fact that the Judge did not have to make a finding about that in order to dispose of the RBS case these comments are not binding on future tribunals, but they will certainly be persuasive. At first blush they are also concerning.

However, it is important to note that his rationale was principally one born out of an assumed prudence on the part of companies: …a corporation is unlikely to authorise an individual to seek and receive legal advice on its behalf to an individual or body which is not its directing mind and will.” Given his rationale it seems unlikely that, in practice, Courts will seek to interfere with the usual practice of General Counsel and/or Chief Compliance Officers being tasked with seeking legal advice when issues necessitating investigation arise. The restatement of the relevant principles does, however, serve as a salutory reminder to in-house lawyers: communications between in-house lawyers and employees of the company other than senior (likely Board-level) company officials are unlikely to be covered by legal advice privilege.

Status of Interview Memoranda – a Question of Substance Over Form

RBS provided an alternative claim, stating that the memoranda in question were privileged because they represented the “lawyers’ working papers” and, per the requisite test, “gave a clue as to legal advice given to RBS”. As the documents contained written notes by the lawyers, they necessarily recorded their “mental impressions”, and recorded, for example, the lawyers’ selection of the topics covered in the interview; for that reason the records of the interviews, so they argued, should be considered privileged communications.

Hilyard J accepted that the notes would, in fact, reflect the note-takers “mental impressions”, but this was insufficient to establish privilege; RBS had failed to provide examples of how the interview notes contained any analysis or legal input: the application of the usual Upjohn Warnings and/or other common annotations not dispositive for claims of privilege – it is the substance that matters and, in this case, RBS had not discharged the burden on them to prove that privilege existed in these documents.

What Now?

Those who have responsibility for, and conduct of, internal investigations must consider their approach to recording interviews carefully in light of RBS. One of the first, and most important questions, before any work commences on an internal investigation is “Do the circumstances dictate that we have a properly arguable claim for litigation privilege?”

If the answer is “yes” then the likelihood is that nothing will change in practice.

If the answer is “no” then, no doubt, companies will be reticent to generate reams of expertly drafted unprivileged notes of interviews with their employees, at great expense, knowing that regulators and prosecutors alike may now compel their production from them.

So, what will they do?

On the one hand, we may see companies choosing to record, and transcribe, all of their interviews on the basis that they no longer see the benefit of the traditional lawyer-drafted memos but, on the other (more likely) hand we may simply see lawyers adapting the way in which they record interviews with an eye upon maintaining privilege.

What is certain, is that  the Serious Fraud Office(who have described internal investigations and the allied assertion of privilege over the produce as tantamount to “trampling over the crime scene”) and other prosecutors such as the Financial Conduct Authority and the Crown Prosecution Service, will see this as their opportunity to obtain highly valuable material that, historically, they have been prevented from accessing.

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