Privilege issues in the context of regulatory investigations of financial institutions

This article considers the consequences for financial institutions and their insurers of the recent decision in Property Alliance Group Limited v Royal Bank of Scotland PLC , which saw a claim for legal advice privilege by the defendant bank rejected in part.

Property Alliance Group Limited v Royal Bank of Scotland PLC is the latest decision arising from the LIBOR manipulation scandal and sheds light on when financial institutions may be compelled to disclose documents prepared in connection with a regulatory investigation.

The facts

Royal Bank of Scotland (RBS) sought to resist disclosure of documents relating to the Executive Steering Group (ESG), a high level committee of senior RBS employees established in 2011 to investigate the extent of its own LIBOR misconduct. Of particular concern to RBS were documents prepared by its lawyers relating to the meetings of the ESG. In relation to these documents RBS asserted legal advice privilege. The claimant wished to characterise the ESG as a sub-committee of the RBS board in order to rely on case law suggesting that the minutes of a board meeting will not usually be privileged, even if it is possible to infer from them the content of privileged advice given to a company. To avoid having to give disclosure, RBS described the purpose of the ESG meetings as being "…to receive legal advice from its external legal advisors 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".

Having initially abandoned the request for disclosure in light of RBS’s description of the ESG, the later production of a skeleton argument by RBS which characterised the ESG as "formed…to oversee the investigations and potential litigation concerning LIBOR" caused a change in approach by the claimant. Given this new description, the claimant argued that it could not be said that all of the ESG meetings were for the purpose of imparting legal advice. Rather, part of the purpose of the meetings would be to inform RBS of the factual investigations that the ESG was overseeing. It followed that the relevant documents should be disclosed and that any legal advice contained within them could be redacted in the same vein as board minutes.

Rather than requiring RBS to produce another statement of its claim to privilege, the judge resolved to inspect the documents to determine which documents or parts of them were privileged.

Disclosure of "without prejudice" correspondence with the regulator

In addition, the judge held that privilege akin to without prejudice privilege could attach to correspondence between RBS and the regulator, where documents had been produced by RBS to the regulator, pursuant to agreements recording that there was no waiver of privilege. This was the case notwithstanding the public nature of the Final Notice issued by the Financial Conduct Authority (FCA) at the end of the LIBOR investigation.

Although this should have come as welcome news for RBS, it faced further difficulties because it had sought to put in issue in its defence that the FCA had not made a finding of misconduct regarding the setting of GBP LIBOR. The court therefore determined that, in circumstances in which RBS had reached a negotiated settlement with the FCA in relation to GBP LIBOR and RBS was seeking to rely upon the lack of a finding of misconduct, it was in essence putting in issue the basis upon which the Final Notice was decided. In such circumstances, RBS could not have it both ways – it could not rely upon the finding without disclosing the correspondence that preceded the finding. Had it not sought to rely on the Final Notice as evidence that there was no misconduct in relation to GBP LIBOR, the basis upon which the Final Notice was decided would not have been in issue and RBS would not have been at risk of having to produce the without prejudice correspondence for inspection.

The position of litigation privilege

Although it was not argued that the ESG documents should be subject to litigation privilege, it is worth bearing in mind that to do so, RBS would have needed to demonstrate that such documents were created for the dominant purpose of conducting or aiding the conduct of actual litigation or litigation which was reasonably in prospect. If documents are created for two purposes with an equal weight, case law indicates that the dominant purpose test will not be met.

When regulatory issues come to light, many financial institutions will often carry out their own factual investigations at an early stage and the purpose may not be simply to obtain legal advice in anticipation of litigation, but also to address concerns regarding compliance with internal practices for internal purposes. Therefore, although on most occasions financial institutions will be able to rely on litigation privilege, there may well be occasions on which the protection is not absolute.


The decision relates to a very distinct set of facts but, against a backdrop of increased regulatory investigations and related claims post-dating them, it is important for financial institutions and their advisers to carefully consider issues of privilege and, in particular:

  • With whom to share documents
  • The terms on which the documents are shared
  • Whether such terms could lead to a waiver of privilege
  • The way in which any claims to privilege are characterised

Although RBS was compelled to disclose more than it had bargained for, some comfort can be taken from the fact that the decision makes it clear that financial institutions can generally negotiate with regulators without fear of being compelled to disclose such documents in subsequent litigation. That is unless, of course, the institution itself decides to call into question or seek to rely upon particular findings in the Final Notice issued by the FCA, or by regulatory authorities in other jurisdictions.

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