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Maintaining privilege in U.K. regulator-facing investigations: issues for company advisers

Introduction

The recent judgment approving the Rolls-Royce ("Rolls") deferred prosecution agreement ("DPA") demonstrates that no company is too big for the U.K. Serious Fraud Office ("SFO") to pursue. As demonstrated by the settlement figure of just under £500 million – including a fine of almost £240 million – the SFO has announced itself as a significant player on the global enforcement stage. Where the U.K. has an interest or is the primary regulator, it is now important for companies to carefully U.K. jurisdictions when approaching investigations.

One important defence right in the U.K. for companies facing enforcement proceedings is the right to maintain privilege over legal advice in compliance or regulatory matters. This right has been characterised by the Court in England as a "fundamental condition on which the administration of justice as a whole rests." Nonetheless, in Rolls, the company reportedly waived privilege over interview memoranda of its employees.

Post Rolls, how should a company and its advisers navigate privilege issues specifically in U.K. led investigations?

  • What is the scope of a company's right to claim U.K. privilege in corporate investigations?
  • When might a company elect, or in other instances feel strategically compelled, to abrogate privilege rights?
  • How should a company structure a fact investigation to best preserve privilege in the U.K.?

(1) U.K. privilege in corporate investigations

The SFO has stated that it will challenge illegitimate claims to privilege in corporate investigations. The stance raises issues regarding the extent to which a company can claim privilege in the U.K. over certain investigation materials, most particularly to interviews with employees and/or third parties and documents created by external lawyers.

Under English law, there are two types of legal professional privilege: legal advice privilege and litigation privilege:

Legal Advice Privilege.

Legal advice privilege covers confidential communications between lawyers and their clients for the purpose of giving or obtaining legal advice, including advice as to what should prudently and sensibly be done in the "relevant legal context". If the advice relates to rights, liabilities, obligations or remedies of the client under private or public law it is likely to be deemed as falling under a "relevant legal context". For an effective advice privilege to be claimed one must consider relevance and purpose: are the documents created as part of the confidential information flow between lawyer and client, falling within the relevant legal context? Recent case law involving RBS, has confirmed that the source of information contained within a document does not determine whether the information is privileged, so the reporting of non-privileged facts gleaned from third party meetings (including witness interviews) will be privileged if the document which contains those facts is privileged. The claim depends on the form of the document: a bare transcript of a non-privileged meeting will likely not attract privilege but a summary generated by a lawyer for a client will be privileged.

Litigation Privilege.

Litigation privilege covers (i) communications between clients and their external lawyers, (ii) communications between external lawyers or clients and relevant third parties, and (iii) documents created by or on behalf of clients and/or their external lawyers, provided the communications or documents were made for the "dominant purpose" of litigation, which is either ongoing or in reasonable contemplation. Under English law, confidential communications pertaining to an SFO or other law enforcement investigation are likely to be subject to litigation privilege. However, during the course of white-collar regulatory investigations, documents are frequently created as part of company projects or undertakings which only partially relate to the matters under investigation. Therefore, companies need to carefully consider whether the dominant purpose for creating the document is truly a litigation purpose. A claim of litigation privilege is more likely to be challenged by a regulator in an investigation (i) which lacks an identified criminal dimension and (ii) in which a formal accusation of wrongdoing has not yet been made.

Where a company has a robust litigation privilege claim, it can structure investigatory communications and create privileged documents. For instance, witness interviews with relevant individuals (whether within or outside the company) will be covered by the privilege, provided they are for the dominant purpose of the relevant litigation.

(2) Structuring a fact investigation to best preserve privilege in U.K. corporate investigations

Once a U.K. headquartered company has determined that it needs to investigate potential wrongdoing, it should engage the advice of external lawyers. Privilege will more clearly apply to external lawyers' advice and work product than to the work product and advice of its own legal department. In-house lawyers often perform a broad range of roles extending beyond purely "legal" advice. Taking time to consider privilege issues at the outset of an investigation will mean that a company has a better chance of confidentially controlling its work product. Failure to do so can be irrecoverable.

Appropriately structuring witness interviews as privileged ensures protection and allows a company to consider whether to waive that privilege. Whereas setting up non-privileged witness interviews risks such material becoming irreversibly disclosable in all relevant proceedings.

(3) Departing from claims to privilege in corporate investigations

For companies under investigation by the U.K. regulators the most favourable outcome might be to enter into a Deferred Prosecution Agreement ("DPA"), thereby avoiding prosecution and ancillary consequences of conviction. The U.K. regulator does not demand waiver to secure co-operation credit sufficient to achieve a DPA. Waiver seems to have become a plus point for a company that finds itself behind the co-operation curve.

Leveson LJ cited instances of Rolls' "genuine co-operation", including that Rolls agreed to:

(i) make audio recordings of witness interviews at the SFO's request; and

(ii) disclose all interview memoranda (on a limited waiver basis), despite Rolls' view that such memoranda were privileged.

It seems therefore that a company can therefore use co-operation credit to mitigate its own misconduct and to "tip the balance" in favour of a DPA. However, before taking the decision to waive privilege for this reason, a company needs to consult with its advisers about the potential wider ramifications which flow from the waiver. This will be particularly relevant in cases touching upon multiple jurisdictions, where the principle of "selectively" waiving privilege to one party may not be recognised in other jurisdictions. Particularly relevant are cases with multiple jurisdictions and regulators, where the principle of "selectively" waiving privilege to one party may not be recognized. Under U.S. law, the principle of "selectively" waiving privilege to one party, while claiming privilege against other parties in ongoing or future proceedings is not generally recognised. Furthermore, there may be a risk that the company will also be taken to have waived privilege over other materials as well, under the principle of "subject matter" waiver. In such cases, greater risks attach to waivers of external lawyer "opinion" work product, which represents the formal advice provided to a company by its external lawyers on a company's rights, liabilities and obligations. The consequences of waiving privilege without a proper assessment of these risks, or otherwise generating non-privileged material, may be damaging for financial, commercial and reputational reasons.

So how might a company find the balance between these competing issues, in the context of a multi-jurisdictional investigation, whilst simultaneously balancing the risk of waiver against the rewards of co-operation? If a company does decide waiving privilege is ultimately desirable, then it should consider what it can do to control the potential breadth of the waiver. Practical steps a company could consider include oral read downs to third parties or to government and enforcement authorities and/or seeking the third party regulator's consent to a tightly-worded confidentiality agreement. A written agreement, at the very least, can set up a prospective defence to counter a later claim that a broader waiver than was envisaged by the company has occurred.

Conclusion

Increased co-operation between the SFO and other government agencies, and an expectation from the SFO that co-operation credit requires companies disclose fact findings from witness interviews in lawyer-led investigations, means that it is more important than ever that companies consult external lawyers at the earliest opportunity to structure their investigations in a manner which will best protect their privilege position.

The authors would like to thank Chloe-Jane Belton and Evan Flowers for their contribution to this article