Investigations: notes of employee interviews not privileged

Although the interview notes may have been privileged as a matter of U.S. law, the English court held that English law, and not U.S. law, was the proper law to determine the question of privilege in this case. The court accepted that it could exercise a discretion to not permit disclosure of the interview notes if they were privileged as a matter of U.S. law. However, the court declined to exercise this discretion. We understand that this judgment is likely to be appealed. However, in the meantime firms that wish for records of their internal investigation interviews to be privileged will need to think carefully about how such records are prepared in light of the comments made in this judgment: The RBS Rights Issue Litigation, Re [2016] EWHC 3161 (Ch) 

The back drop to this hearing is the various actions, all subject to a Group Litigation Order, against RBS (the Bank) over its 2008 rights issue.

The Bank claimed privilege over notes of interviews which related two investigations: one in response to U.S. SEC subpoenas relating to sub-prime exposures and the other in relation to allegations made in relation to the marketing of ‘Super Seniors CDOs’. The notes were made, variously, by in-house lawyers, external lawyers, and non-lawyers who, the Bank maintained, were acting as agents of its external lawyers.

The Bank argued that the interview notes were protected:

• by English law legal advice privilege as a record of communications between a lawyer and its client for the purposes of obtaining legal advice; or

• as lawyers' privileged working papers under English law; or

• as privileged under U.S. law,

and, even if they were not privileged under English law, the Bank said the court should exercise its discretion not to order disclosure or inspection because of the rights under U.S. law that would be breached. No litigation privilege was claimed.

The Bank lost on all grounds and has indicated an intention to seek permission to appeal.

A reminder of Three Rivers No 5

The facts surrounding Three Rivers No 5 [2003] QB 1556, were that creditors of BCCI had brought an action against the Bank of England for misfeasance in public office in respect of the Bank of England's supervision of BCCI before its collapse. They sought disclosure of documents which had been produced for an inquiry into the Bank's supervision of BCCI conducted by Bingham LJ. A special unit within the Bank of England had been specifically established to deal with inquiries and to seek and receive advice from Freshfields, known as the Bingham Inquiry Unit or BIU. All the BIU's communications with the Bingham Inquiry were the subject of legal advice from Freshfields and counsel instructed by them. This advice covered all aspects of the preparation and presentation of the Bank of England's evidence and submissions to the Bingham Inquiry. The documents that the creditors of BCCI sought were documents prepared by employees that were not part of the BIU. They did not seek disclosure of documents passing between the BIU and Freshfields or vice versa or of any of Freshfields' internal memoranda or drafts.

The Court of Appeal in Three Rivers (No 5) rejected the notion that the Bank of England itself could be regarded as the "client" for privilege purposes. Accepting the arguments of the creditors, it treated the BIU as the "client". As a result information gathered by an employee who was not part of the BIU could not be protected by legal advice privilege, since that employee would be no different to a third party. Accordingly, even if the Governor himself of the Bank of England had noted down what he remembered in relation to the supervision of BCCI with the intention of giving it to the BIU for transmission to Freshfields, such a document would not be subject to legal advice privilege.

The attack on Three Rivers No 5

The Bank in this case pointed to the sustained criticism of Three Rivers No 5 by commentators and most recently the Singapore Court of Appeal. The High Court, while accepting the force in this criticism, felt bound by the Court of Appeal.

Distinguishing Three Rivers No 5

In what the High Court described as a cogent submission, the Bank argued that Three Rivers No 5 was confined to what it described as "purely internal documents, that is, documents which Bank employees sent to other Bank employees (such as members of the BIU), not to Freshfields".  Accordingly it would not be contrary to Three Rivers No 5 to treat as protected by legal advice privilege, instructions or factual information communicated in confidence to a company's lawyers, with the authority of the company and at the request of the lawyers, for the purpose of enabling the company to seek or receive legal advice. Here, the Bank argued, the individual was an emanation of the client.

The essential question was then did either the fact of authority to participate in an information gathering process or the fact that the interview notes recorded a direct communication, distinguish the present case from Three Rivers No 5 and so as to justify the employees being treated as "the client" or a qualifying emanation of the client, rather than "third parties"? The court held, not.  The interview notes comprised information gathering from employees preparatory to and for the purpose of enabling the Bank, through its directors or other persons authorised to do so on its behalf, to seek and receive legal advice. In other words the present case could not be distinguished from Three Rivers No 5.

Were the interview notes lawyers' working papers?

It was not disputed that verbatim transcripts of unprivileged interviews would also themselves not be privileged. So the Bank had to show something more. The court, relying on previous authority, contrasted a note which "records the substance of a conversation" (which would not be privileged) with a note which also records "the note-taker's own thoughts and comments on what he is recording with a view to advising his client" (which almost certainly would be privileged).

Since the Bank was claiming privilege the burden of proof lay with it. The evidence needed to be as specific as possible without making disclosure of the very matters that the claim for privilege was designed to protect.

The court found that the Bank’s evidence was conclusory in nature. The Bank was saying the interview notes must be working papers since they were not a verbatim record. But that was not enough. There was nothing to substantiate any legal analysis. The annotation that the notes reflected the "mental impressions" of the lawyers (deriving from the U.S. case of Upjohn) was not sufficient of itself. The sort of detail that might be appropriate in the evidence, which had not been forthcoming, was illustrated by reference to the Upjohn case: "Thomas described his notes of the interviews as containing 'what I considered to be the important questions, the substance of the responses to them, my beliefs as to the importance of these, my beliefs as to how they related to the inquiry, my thoughts as to how they related to other questions. In some instances they might even suggest other questions that I would have to ask or things that I needed to find elsewhere'."  Moreover the court felt that there was a real difference between reflecting "a train of inquiry" and reflecting or giving a clue as to the trend of legal advice, and that this difference was recognised and approved by the Court of Appeal in Sumitomo [2001] EWCA Civ 1152.

On the evidence before it the court did not accept that the interview notes were lawyers' working papers.

Did U.S. law apply?

The court accepted that the interview notes would probably be protected by privilege under U.S. law. However, the court concluded that whether described as a rule, a convention or practice, it was the approach of the English Court to apply the law of the forum to issues of privilege, and had been so since the mid-19th century.  It would be altogether too drastic and unsupported a departure to adopt an entirely new "choice of law rule". English law, and not U.S. law was the proper law to determine the question of privilege.

Should the court as a matter of discretion refuse to permit disclosure?

Finally, the Bank argued that, since the interview notes were privileged as a matter of U.S. law, the court should use its inherent jurisdiction not to permit disclosure since if the notes were disclosed this would breach the Bank’s rights under U.S. law and the interviewees had a reasonable expectation of privilege. Whilst accepting that it could exercise such a discretion the court declined to do so. It would have needed an exceptional concern such as a fear that disclosure could lead to violence, intimidation, interference with witnesses and destruction of evidence in order to exercise this discretion. While it was troubled by the apparent assurances given to the interviewees, and what may have been the Bank’s own expectations, this case was not sufficiently exceptional to merit exercise of the discretion.

Comment

This case is an important reminder of quite how restrictive the definition is of the "client" for the purposes of legal advice privilege as a result of the much-criticised decision in Three Rivers No 5. It also demonstrates the challenges of responding to international investigations where what may be privileged in one jurisdiction may well not be in another.

Claims to privilege over notes of internal investigation interviews is a topic that has vexed UK authorities such as the FCA and the SFO for several years. In particular, in a speech given in late 2015, the FCA expressed frustration at what it perceived to be a lack of transparency on some firms’ parts regarding documents produced during an internal investigation. The FCA cited firms’ reluctance or refusal to hand over notes of internal investigation interviews on the basis that they are privileged as an example of this lack of transparency. On this topic, the FCA stated that it ‘fully understand[s] and respect[s] the needs and the rights to firms to claim and protect their rights to legal privilege where appropriate’ but warned that firms should not allow ‘legal privilege to become an unnecessary barrier to sharing the output [of an internal investigation] with the FCA’. A practice adopted by a number of firms in recent years has to be read aloud the output from internal investigations (including summaries of interviews conducted) to the FCA in meetings or over the telephone, as opposed to providing this information to the FCA in writing. During the same speech in late 2015, the FCA described this practice as ‘an absurd way to suggest that a public authority should operate’. 

We understand that the Bank may appeal the court’s decision in this case. However, in the meantime, firms conducting interviews as part of internal investigations will need to think carefully about how they record the output of those interviews if they wish such materials to attract privilege. In particular, this judgment indicates that for materials like a lawyer’s note of an interview to constitute lawyers' working papers and for legal advice privilege to apply, substantive legal advice needs to be interwoven into those notes. A summary of the interview without this kind of additional information is unlikely to suffice. 

For further news on Financial investigations see Allen & Overy blog Investigations Insight.

2 February 2017: The lawyers acting for RBS have said "the appeal will not take place, as recent amendments to the claimants' case mean the disputed documents are no longer relevant to the issues in the action."

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Amy Edwards amy.edwards@allenovery.com, or tel +44 20 3088 3710.