The vexed issue of claiming privilege over internal reports

A company conducts an internal investigation into an accident or a deal that looks like it’s going pear-shaped. In subsequent litigation, can it claim privilege over any notes or minutes of committee or board meetings and any internal reports on the topic? This is a crucial question that comes up time and time again because the answer is not straightforward. We review the principles and offer some practical guidance.

Many issues about privilege arose in Property Alliance Group Ltd v Royal Bank of Scotland Plc, the third decision this year in this interest rate swaps litigation alleging LIBOR manipulation by the Royal Bank of Scotland. One of them was RBS’s assertion that legal advice privilege applied to various categories of documents prepared by its lawyers relating to meetings of the bank’s Executive Steering Group (ESG), a high level committee of senior RBS employees set up in 2011 to investigate the extent of its own LIBOR misconduct.

The claimant, PAG, is a property developer. It entered into four interest rate swaps with RBS between 2004 and 2008, which used three month GBP LIBOR as a reference rate. RBS was investigated by a number of regulators from 2010 onwards. It admitted misconduct relating to two other LIBOR currencies but denied any misconduct regarding the setting of GBP LIBOR and reached a settlement with the Financial Services Authority.

PAG claims that RBS made misrepresentations about LIBOR which induced PAG to enter into the swaps. PAG argued at this application that in the regulated banking environment there must be high level documents in existence that summarise what happened, which in turn would have been looked at by the bank’s board, or a sub-committee of the board, to enable it to perform its function. For ease, these are referred to below as “the ESG documents”.

Privilege and internal reports

Before looking at the position in the present case, it is worth reminding ourselves of the circumstances in which a company can claim privilege over documents connected with internal investigations.

Although litigation privilege was not claimed over the ESG documents, it may be appropriate to claim litigation privilege in other cases. We look below at the circumstances in which litigation privilege will apply.

Legal advice privilege, the type of privilege claimed for the ESG documents, will apply where a document records legal advice given by a lawyer to a client. Where the minutes of a meeting refer to legal advice, that part of the document may be privileged but this does not mean that the rest of the document will be privileged. The privileged part of the document can be redacted prior to inspection.

Board minutes

PAG was keen to characterise the ESG as a sub-committee of the board so as to rely on a comment in Financial Services Compensation Scheme Ltd v Abbey National Treasury Services Plc. In that case, the judge said that the minutes of a board meeting will not usually be privileged - the fact that it may be possible to infer the content of privileged legal advice given to the company from the decision taken by the board recorded in the minutes does not make the minutes privileged.

What was the role of the ESG?

In order to work out the nature of the ESG documents so as to decide whether RBS’s claim to privilege was made out, it was necessary to understand the role of the ESG. The bank’s solicitors in the litigation, Dentons, described the purpose of the ESG meetings in a letter to the claimant’s solicitors dated 23 April this year as being for RBS:
“…to receive legal advice from its external legal advisers on the regulatory investigations. Those legal advisors attended the ESG meetings for the purpose of imparting this legal advice or receiving instructions from our client for the purpose of providing further legal advice”.

On receiving this letter, PAG dropped its claim for disclosure of the ESG documents, accepting that the description of the ESG meetings justified the claim to legal advice privilege. However, PAG changed its mind when reading the bank’s skeleton argument. This characterised the ESG as “formed … to oversee the investigations and potential litigation concerning LIBOR”.

The judge, Birss J, shared PAG’s view that it was unlikely that all of the ESG’s meetings were for the purpose of imparting legal advice. He thought that it was much more likely that one purpose of the meetings (or part of them) would have been to inform the bank factually about the outcome of the investigations the ESG was set up to oversee. While legal advice contained in a document would be privileged, he noted that “it does not follow from this that any factual summary in the document is privileged”.

The decision

Birss J concluded that even if the ESG was not a sub-committee of the board, it was plainly an important committee operating at the highest level. PAG was entitled to be concerned that the description of the ESG’s role had changed (RBS did not contend that its role was as narrow as that set out in the letter of 23 April). If part of the ESG’s role included the task of overseeing investigations and reporting to RBS, not all of the content of the high level ESG documents would be privileged.

The judge agreed with PAG that there was no justification for RBS to be ordered to produce “yet another statement of its claim to privilege”. The practical solution was for a judge to inspect the ESG documents pursuant to CPR 31.19(6) so as to determine which documents or parts of documents were privileged.

Litigation privilege

A party may be also able to refuse to disclose documents connected with an internal investigation where they are protected by litigation privilege. The document must have been created for the dominant purpose of conducting or aiding the conduct of actual litigation or litigation which is reasonably in prospect. The chance of litigation does not have to be greater than 50 per cent at the date the communication is created.

This means that where an internal investigation report is prepared with two purposes of equal weight – to obtain legal advice in anticipation of litigation arising from the accident or incident and also to answer concerns about safety or compliance with internal practices - the dominant purpose test will not be satisfied and the report will be disclosable in subsequent litigation (Waugh v British Railways Board).

West London Pipeline and Storage Ltd v Total UK Ltd, the litigation arising out of the explosion at Buncefield oil depot in Hertfordshire in 2005, is a good illustration of the difficulties faced by a defendant resisting disclosure of internal documents such as records of interviews and health and safety investigation reports following an accident.

A simple way of approaching the dominant purpose test is to ask whether the facts in the report need to be established whether or not litigation ensues. If they do, the report is unlikely to be privileged.

Points to take away

• Minutes of board meetings are generally disclosable, even if it is possible to infer the gist of legal advice given to the company, but references to legal advice can be redacted.
• The fact that the company’s lawyers are present at all meetings and draw up the minutes will only entitle the company to claim privilege over related documents if the purpose of the meetings was to impart legal advice or the dominant purpose of the meetings was anticipated litigation. 
• It is very difficult to satisfy the dominant purpose test so as to be able to claim litigation privilege over documents connected with factual investigations after an incident. 
• Where lawyers are already involved, a failure to tell the client to preserve disclosable documents could prove to be an own goal when it comes to asserting litigation privilege (see Starbev GP Ltd v Interbrew Central European Holding BV). 
• Inconsistent statements by the party or their lawyers about the purpose of an investigation are unhelpful to the party claiming privilege (this happened in both Property Alliance Group Ltd v Royal Bank of Scotland Plc and West London Pipeline and Storage Ltd v Total UK Ltd). 
• Inspection of the documents in question by the court may be adopted as a last resort, in preference to ordering further statements from the party claiming privilege or permitting cross-examination.