Privilege in Cross-Border Investigations – Whither Shall We Go Following the Rights Issue Decision?
09 March 2017
The ripple effects of the important December 2016 decision by the English High Court in The RBS Rights Issue Litigation continue to reverberate. In holding that notes of interviews by a firm's lawyers of the firm's own employees created for the purpose of providing legal advice are nonetheless not protected from disclosure by legal advice privilege, the English High Court appears has upended what have been commonly-used practices and assumptions in conducting investigations and interviews of a firm's employees. Among the more challenging issues to consider in the wake of this judgement is how firms will conduct cross-border investigations and still maintain privilege to the greatest extent possible. Given that 2016 produced Brexit in the UK and the election of Donald Trump in the US – together with an apparent re-thinking in both countries of their respective roles in the world – it is perhaps fitting that the same year also produced a judgement that may cause a fundamental re-thinking of how firms handle cross-border matters.
Although the Rights Issue decision is at its core rooted in English law and the Court of Appeal's decision in Three Rivers (No 5), together with an application of that law as the lex fori, the case highlights the cross-border legal issues that firms face routinely. The claimants in Rights Issue sought disclosure of a collection of notes of employee interviews prepared mainly as part of an investigation undertaken in response to two subpoenas issued by the US Securities and Exchange Commission; the interviews were conducted by a combination of US and UK law firms. In litigating the issue, the respondents argued creatively, but ultimately unsuccessfully, that the High Court should apply US law rather than English law.
The Continuing Influence of Upjohn – And Its Rejection of the 'Control Group' Test
The High Court judgment referred in several places to the US Supreme Court's 1981 decision in Upjohn v. United States. Upjohn is of course the namesake of the statement given at the beginning of many internal investigation interviews for the purpose of ensuring that employees being interviewed are aware that the firm's lawyers do not act for them and that the privilege attaching to the interview is controlled by the firm, which can choose to waive it. Upjohn was a seminal decision in US privilege law, and one that reached the opposite conclusion to the Rights Issue case.
In Upjohn, the US tax authority sought disclosure of interview notes and questionnaires of employees prepared by internal and external counsel as part of an investigation of potential bribery of foreign government officials in order to secure business. The US Supreme Court reversed the ruling of the Sixth Circuit Court of Appeals, which had concluded that attorney-client privilege (the US version of legal advice privilege) extended only to a so-called 'control group' of employees and therefore would not apply "[t]o the extent that the communications were made by officers and agents not responsible for directing Upjohn's actions in response to legal advice . . ., for the simple reason that the communications were not the 'client's.'" Compare that to the formulation in Rights Issue, where the High Court concluded that the "individuals interviewed were providers of information as employees and not clients: and the Interview Notes were not communications between client and legal adviser", and further stated that "I do incline to the view that only communications with an individual capable in law of seeking and receiving legal advice as a duly authorised organ of the corporation should be given the protection of legal advice privilege".
In Upjohn, the US Supreme Court rejected the 'control group' test and concluded that the questionnaires and interview notes at issue were protected by the attorney-client privilege. The Supreme Court's concerns centred on fundamental policy grounds, and it stated forcefully that the 'control group' approach "frustrates the very purpose of the privilege by discouraging the communication of relevant information by employees of the client to attorneys seeking to render legal advice to the client corporation." The court noted that it is often the lower and middle level employees who will have knowledge of the relevant facts that are the sine qua non of good legal advice. Further, drawing the boundaries of privilege so as to exclude such employees forces firms and their lawyers to make a Hobson's choice – avoid privilege risk by refraining from speaking with knowledgeable employees but suffer a lack of critical facts, or acquire those facts in a way that exposes the firm to significant risk of disclosure. To the critique that the shield of privilege would reach too wide, the court rightly noted that privilege protects only the communications between a lawyer and client – it does nothing to protect the underlying facts themselves, which remain subject to disclosure.
Carve-outs and Workarounds, or Just Less Willingness to Seek Legal Advice?
The critiques set forth in Upjohn are salient when considering the impact that the Rights Issue decision will have on firms, and particularly on cross-border investigations. Those who are involved frequently with such matters will know well the difficulties involved in dealing with varying national data and information protection regimes in investigations that by necessity must encompass global businesses. The US in particular is a pariah of sorts for its lack of data protection laws and its generous approach to civil discovery in class action (and other) cases. Firms are often well-advised to consider their approach to data sharing to prevent documents being made available in the US, so as to reduce risk in jurisdictions outside the US (which may sanction firms for sending data into the US) as well as in the US itself (so that materials are not inadvertently made available in the US when they otherwise would not be).
One wonders now whether the UK will find itself treated in a similar fashion when it comes to interview notes, with investigations structured so that interview notes are not created by, or sent to, people based in the UK. As a practical matter this could prove to be more trouble than it is worth. Even if the interview notes are not in the UK, but are nonetheless under the control of a party to English litigation, they will be disclosable in the litigation. But in some circumstances, applying forethought to how to structure an investigation may allow firms to continue to enjoy the protections they have relied on while minimising the risk of disclosure.
And as reflected in Upjohn, there are very good reasons for doing so: Firms have the right to seek appropriate, candid legal advice on issues of importance. And that legal advice must be based on the critical facts – advice provided in the absence of such facts will miss the mark. Many modern firms are big, complex institutions with tens of thousands of employees in locations around the globe. But just because they are complex does not mean that they do not need solid legal advice based on the key underlying facts; quite the reverse. Firms should be able to gather those facts – no matter how complicated an exercise that turns out to be and regardless of how many employees possess relevant knowledge – so they can receive their legal advice without fear that their efforts will be open for inspection by the world. As the Upjohn court noted, privilege protects "full and frank communication between attorneys and their clients and thereby promote[s] broader public interests in the observance of law and administration of justice". Barring a creative workaround, the restrictions on privilege articulated in the Rights Issue decision mean that those broader interests may now be less well served under English law.