Privilege in Regulatory Investigations - Protecting Documents Recording Negotiations with a Regulator

In a judgment that will be of interest to Irish practitioners, the English High Court has confirmed that a right comparable to “without prejudice” privilege can properly be exerted in the context of regulatory investigations but may be lost if the negotiations are subsequently deployed in litigation.

In May, the Irish Commercial Court confirmed that litigation privilege can extend to documents created for the dominant purpose of a regulatory or criminal investigation1. Now, in a judgment delivered just three weeks later, the English High Court has considered the extent to which a bank could assert without prejudice privilege over documents evidencing the position that it took in negotiations with the Financial Services Authority (“FSA”).

In Property Alliance Group Limited v The Royal Bank of Scotland plc 2, the claimant had entered into four interest rate swaps with RBS. Each swap had employed 3 month GBP LIBOR as a reference rate. RBS had previously been found by regulators to have been manipulating LIBOR. The claimant now alleged that by proposing LIBOR as a reference rate in the swaps, RBS had represented that it was not rigging the rates for its own ends. While RBS had formally admitted misconduct relating to Japanese Yen and Swiss Franc LIBOR, it had denied any misconduct in the setting of GBP LIBOR.

RBS had been ordered to make disclosure in the case but had sought to assert without prejudice privilege over communications with the FSA. The documents evidenced negotiations with the FSA prior to the issue of the FSA Final Notice imposing a penalty on the bank for the LIBOR manipulation. On this point, the court accepted in principle that a right comparable to without prejudice protection applied to communications that had been part of genuine settlement talks with the regulator.

RBS had shown or given to various regulators other documents which it had claimed were subject to legal professional privilege. It claimed that privilege had not been waived as it had been agreed that each document would be given or shown on a confidential “non-waiver” basis with only limited carve outs to preserve the rights of the regulators to make further disclosure in performance of their statutory duties or as otherwise required by law. In the absence of any English authority on the point, the court relied on the Irish Supreme Court’s decision in Fyffes v DCC 3 and the Hong Kong case of Citic v Secretary of State for Justice 4 and held that there was no waiver of privilege.

However, RBS’s formal defence in the proceedings relied on the fact that the regulators had not found misconduct relating to GBP LIBOR in their investigations. This being so, the Court found that RBS had itself put in issue the basis on which the regulatory findings were made and could not therefore rely on an assertion of without prejudice privilege in respect of documents evidencing those negotiations. RBS could not on the one hand rely on things that the regulators’ findings had not found as indicating the limits of its misconduct and yet on the other hand seek to maintain as privileged the position it had taken with the regulators. In those circumstances, RBS had waived privilege over those documents. The court held that the same rationale also applied in relation to the documents supplied to the regulators.

This judgment has, wrongly we think, given rise to a sense of panic among some commentators, who have taken it as substantially undermining the protections available to corporate defendants.

In fact, the decision confirms that privilege will be upheld provided that the party seeking to assert the privilege has not sought to deploy the underlying documents in some way to its benefit, while also seeking to withhold them. This is an unsurprising application of the existing law on privilege and emphasises the need for care to avoid inadvertent waiver, while the confirmation by the English court that without prejudice privilege can apply in the context of negotiations with a regulator, even at the fact finding stage of an investigation, is significant. A party that has been the subject of a criminal or regulatory investigation must therefore give careful thought to the manner in which it pleads its case in subsequent litigation relating to the subject matter of the investigation to avoid risk of waiver, but can still opt to share privileged documents with a regulator provided that it does so formally and on the basis of the criteria laid out in Fyffes v DCC.

  1. Quinn and Ors v Irish Bank Resolution Corporation Limited (In Special Litigation) and Anor [2015] IEHC 315
  2. [2015] EWHC 1557 (Ch)
  3. [2005] IESC 3
  4. [2012] HKCA 153 (Hong Kong Court of Appeal)

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.