The conduct under scrutiny in investigations can generate a large range of parallel proceedings. These can precede the investigation, follow on from the investigation findings, or, frequently, arise in the course of an investigation. It can be a particular challenge to manage parallel proceedings, which engage their own procedural rules and can force the pace of investigations or create other tensions with the investigative process. This chapter deals with the types of issues and parallel proceedings most likely to arise in complex investigations.
33.2 Stay of proceedings
Where a company subject to investigation is also involved in ongoing civil proceedings (before the courts or an arbitral tribunal) that relate to the conduct under investigation, the parties may seek to stay those proceedings pending the outcome of the investigation. This would often be an ideal solution to managing the tensions they introduce but obtaining a stay can be difficult and is not automatic.
33.2.1 Civil litigation
There are various bases on which the civil courts may stay proceedings. Under the Civil Procedure Rules (CPR), the court may use its case management powers to stay the whole or part of any proceedings or judgment either generally or until a specified date or event. The court may also stay proceedings under its inherent jurisdiction. In addition, the court may stay proceedings in specific circumstances pursuant to certain other statutes. There are many reasons why a court may stay proceedings, for instance to allow for arbitration, or for the dispute to be tried in another jurisdiction; or for case management purposes (for example, to allow for settlement negotiations, for procedural reasons, or pending the outcome of another case in which a ruling is expected on a relevant issue).
In circumstances where there are related criminal proceedings, the following principles (among others) will apply to the exercise of the court’s discretion to stay civil proceedings:
- the court will only consider staying the civil proceedings if there is a real risk of serious prejudice which may lead to injustice;
- the court will exercise its discretion by reference to the competing considerations between the parties – the court has to balance justice between the parties;
- the fact that a defendant, by serving a defence in civil proceedings, would be giving advance notice of their defence in criminal proceedings, carries little weight in the context of an application for a stay of civil proceedings;
- it is not enough that both the civil and criminal proceedings arise from the same facts, or that the defence of the civil proceedings may involve a defendant taking procedural steps (such as exchanging witness statements, and providing disclosure of documents) which might not be imposed on them in the criminal proceedings; and
- even if the court is satisfied that there is a real risk of serious prejudice leading to injustice if the civil proceedings continue, the proceedings should nevertheless not be stayed if safeguards can be imposed in respect of the civil proceedings which provide sufficient protection against the risk of injustice.
In the competition law context, the court may stay proceedings to avoid taking decisions that conflict with decisions contemplated by the European Commission.
The court may also impose a stay on the effects of an action, such as a stay of execution of orders of a lower court pending appeal.
A stay of proceedings puts a stop to their further conduct at the stage they have reached, apart from the taking of any steps allowed by the CPR or the terms of the stay. Proceedings can be continued if the stay is lifted.
33.2.2 Arbitral proceedings
Procedural matters in arbitration are governed by the arbitration agreement, the law governing the arbitration and, where relevant, the institutional rules that the parties have chosen.
Arbitral tribunals generally have a broad power to make procedural orders. For example, the Arbitration Act 1996 (which applies where the arbitral seat is in England and Wales or Northern Ireland) provides that an arbitral tribunal may decide all procedural matters, subject to the parties’ right to agree any matter. Further, although any relevant institutional rules may set out a framework for the arbitral procedure, they tend to leave detailed procedural matters to be determined in individual cases.
An arbitral tribunal may decide to stay the proceedings before it (for instance, for case management purposes, to avoid the risk of inconsistent decisions or to ensure the enforceability of an award) if parallel court proceedings are ongoing, particularly where the proceedings are before a court of the jurisdiction of the arbitral seat. If parallel regulatory proceedings are ongoing, a tribunal may stay arbitral proceedings for similar reasons (although this decision may depend on the identity of the regulator).
However, an arbitral tribunal has a range of duties to consider when contemplating staying arbitral proceedings. The primary duty of an arbitral tribunal is to resolve the dispute between the parties in an adjudicatory manner. For instance, the Arbitration Act 1996 obliges an arbitral tribunal, when reaching decisions on matters of procedure (as well as more generally), to act fairly and impartially as between the parties, and to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense so as to provide a fair means for its resolution. Institutional rules can also impose general duties on the tribunal, as well as more specific obligations, such as to make an award within an established time frame. In addition, the parties can impose specific duties on an arbitral tribunal in their arbitration agreement or in the arbitrators’ terms of appointment, which could preclude the use of certain procedural orders or require resolution of the dispute within a certain time period.
33.3 Multi-party litigation
In the United Kingdom, class actions do not feature as part of the parallel litigation landscape to the extent that they do in the United States (in particular, securities litigation). Nonetheless, companies may face civil actions brought by multiple parties in a variety of ways and we describe them for completeness. The two main procedural mechanisms for multi-party litigation envisaged by the CPR are representative actions and group litigation orders. Additionally, a new form of collective proceedings has recently been introduced in the competition law context.
33.3.1 Representative actions
Representative actions allow persons, in certain circumstances, to represent others in legal proceedings (the represented persons are not joined to the action as parties). The CPR provide that such actions may be brought where more than one person has the same interest in a claim. Judgments or orders given in representative actions are normally binding on all persons represented in the claim, but may only be enforced by or against non-parties with the court’s permission.
Representative actions are not extensively used. The provisions of the CPR relating to such actions are restrictive; in particular, the ‘same interest’ requirement. A further potential deterrent is that represented persons are not liable for the costs of representative actions, although the court does have jurisdiction to order that costs be paid by a non-party in exceptional circumstances.
33.3.2 Group litigation orders
Where claims give rise to common or related issues of fact or law, the court may make a group litigation order (GLO), which provides for the case management of claims covered by the order.
The GLO will contain directions about the establishment of a group register on which the claims to be managed under the GLO will be entered, and will specify the court that will manage the claims on the register. The GLO procedure is ‘opt-in’ in nature. Claims must be issued before they can be entered on a group register, and an application for details of a case to be entered on a group register may be made by any party to the case. The management court may set a cut-off date after which no further claims may be added to the group register without the court’s permission.
The GLO will also specify the ‘GLO issues’, which will identify the claims to be managed as a group under the GLO. Judgments or orders given or made in a claim on the group register in relation to the GLO issues are binding on the parties to all other claims on the group register. The court may direct that certain claims on the group register should proceed as test cases.
GLOs have been utilised in a range of different types of dispute, but are not particularly widely used and have been subject to criticism.
33.3.3 Joint claims
Multiple parties can also be joined to the same claim. The CPR give the court a range of powers to add or substitute parties to proceedings. Any number of claimants or defendants may be joined as parties to a claim, and any number of claims may be covered by one claim form (provided those claims can be conveniently disposed of in the same proceedings). However, if a large number of parties are joined, this can lead to practical difficulties.
33.3.4 Test cases
There is no formal and generally applicable test case procedure before the English courts. However, when faced with large numbers of claims that raise common issues, the courts may use their case management powers to allow certain representative claims (usually selected by the parties) to proceed to determination and stay the remainder. While decisions in test cases have value as precedent, they are not determinative of other cases that raise common issues.
Test case procedures have, however, been introduced in certain specific contexts, for example:
- In appropriate circumstances claims subject to a GLO may proceed as test cases.
- A pilot scheme has also been introduced (as part of the implementation of the new Financial List) which enables claims started in the Financial List that raise issues of general importance in relation to which immediately relevant authoritative English law guidance is needed, to be determined as test cases, without the need for a present cause of action between the parties to the proceedings.
33.3.5 Competition law claims
Recent reform has resulted in the introduction of specialised collective proceedings in the realm of competition law claims.
Such proceedings may be brought before the Competition Appeal Tribunal (CAT) on a stand-alone basis (in which case, a complainant must prove an infringement of certain competition law rules) or on a follow-on basis (which requires an existing infringement decision from the Competition and Markets Authority (CMA), the CAT on an appeal from a decision of the CMA or the European Commission).
Claims will only be eligible for inclusion in collective proceedings if the CAT considers that they raise the same, similar or related issues of fact and law, and are suitable to be brought in collective proceedings.
Collective proceedings must be commenced by a person who proposes to be the representative in those proceedings, but they can only be continued if the CAT certifies them by making a collective proceedings order. The CAT may only make such an order (1) if it considers that it is just and reasonable for that person to act as a representative in the proceedings and (2) in respect of claims eligible for inclusion in collective proceedings.
The collective proceedings may be:
- ‘opt-in’ (brought on behalf of those class members who opt in); or
- ‘opt-out’ (brought on behalf of all class members, except for those who (1) opt out or (2) are not domiciled in the United Kingdom at a specified time, and do not opt in).
Class members can opt in or opt out by notifying the representative.
Judgments or orders of the CAT in collective proceedings are binding on all represented persons, except as otherwise specified. The CAT may not award exemplary damages in collective proceedings, and damages-based fee agreements for legal representatives are unenforceable if they relate to such proceedings.
Two proposed sets of opt-out collective proceedings have been brought before the CAT to date. Both were unsuccessful, with the CAT holding in the Pride case that the proposed class was too broad, and in the MasterCard case that the proposed methodology for distributing damages did not reflect the loss suffered by individual members of the class. Nonetheless, arguments in both cases that the representatives were unsuitable failed, and the CAT provided guidance on what it expects from applicants in collective proceedings in future.
As regards costs, the general rule in proceedings before the English courts is that the unsuccessful party will be ordered to pay the costs of the successful party. The CAT, however, has a broader discretion to make any order (at any stage of the proceedings) it thinks fit in relation to the payment of costs, and it may take account of (among other things) the conduct of all parties in relation to the proceedings. Costs will not normally be awarded against represented persons who are not the class representative, except in certain particular circumstances.
Settlement of opt-out (but not opt-in) collective proceedings is regulated by statute and overseen by the CAT (which must approve the terms of any settlement reached). In certain circumstances, collective settlements can also be reached in respect of claims even if a collective proceedings order has not been issued.
33.3.6 Collective redress schemes
The Financial Conduct Authority (FCA) may make rules (under section 404 and sections 404A to 404G of the Financial Services and Markets Act 2000 (FSMA) requiring certain firms to establish and operate a consumer redress scheme in relation to a widespread or regular failure by such firms to comply with requirements applicable to the carrying on by them of any activity. The relevant requirements include both FCA rules and the general law. The power can be used if it appears to the FCA that, as a result of the failure, consumers have suffered (or may suffer) loss or damage in respect of which a remedy or relief would be available in legal proceedings, and the FCA considers that it is desirable to make rules to secure redress for consumers in respect of the failure. In addition, pursuant to section 404F(7) of FSMA, the FCA may vary the permission or authorisation of a firm to require it to establish and operate a scheme that corresponds to, or is similar to, a consumer redress scheme. The FCA also has administrative powers to require restitution under section 384 of FSMA, which it has previously used to establish a compensatory scheme for investors who suffered loss in connection with an overstatement of expected profits by Tesco plc in 2014.
Statutory voluntary redress schemes have also been introduced in the competition law context, under which compensation may be offered by businesses as a result of infringement decisions made in respect of them. Such schemes are subject to the approval of the CMA.
33.4 Derivative claims and unfair prejudice petitions
33.4.1 Law and procedure
220.127.116.11 Derivative claims
Members of a company can bring a derivative claim (pursuant to Part 11, Chapter 1 of the Companies Act 2006 (CA 2006)) in respect of a cause of action vested in the company, and seeking relief on behalf of the company. Such claims may only be brought in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company, and the cause of action may be against the director or another person (or both).
A member who brings such a derivative claim must apply for permission to continue it, and the CPR envisage a two-stage procedure for dealing with applications for permission to continue derivative claims (the company, and any other appropriate parties, are made respondents to the permission application at the second stage).
The court must take into account a number of particular factors when considering whether to grant permission, including the importance that a person acting in accordance with section 172 of the CA 2006 (duty to promote the success of the company) would attach to continuing the claim, and any evidence as to the views of members of the company who have no personal interest (direct or indirect) in the matter. However, permission must be refused in certain circumstances (for example, if the act or omission giving rise to the cause of action has been authorised or ratified).
Part 11 of the CA 2006 also includes a mechanism for members to apply (in appropriate circumstances) for permission (1) to continue as derivative claims certain claims brought by the company or (2) to continue derivative claims brought by other members of the company.
18.104.22.168 Unfair prejudice petitions
A member of a company may also apply to the court for an order under Part 30 of CA 2006 on the grounds that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally, or of some part of its members (including at least the applicant), or that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
The courts take a wide view of prejudice suffered by a shareholder, which need not be financial. The courts also have a very wide discretion in respect of what constitutes unfairness, although they do ‘not sit under a palm tree’ – typically, a member will not be entitled to complain of unfairness unless there has been some breach of the terms on which the member agreed that the company’s affairs should be conducted, although there will be cases in which equitable considerations will make it unfair for those conducting the company’s affairs to rely on their strict legal powers.
The court has a wide discretion to make such order as it thinks fit for giving relief in respect of the matters complained of in an unfair prejudice petition. The most common order in practice is for the shares of the petitioner to be bought by the respondent at a price to be fixed by the court.
As unfair prejudice petitions generally raise numerous factual issues entailing examination of events over a considerable period of time, a high degree of case management is required. In circumstances where a buy-out order is sought, the court will normally determine issues necessary to decide whether a buy-out order should be made at a liability hearing, and only proceed to a quantum hearing if it has been determined that a buy-out order should be made.
33.4.2 Practical considerations
Typically derivative claims and unfair prejudice petitions are brought by minority shareholders. There are a number of practical advantages for such shareholders to bringing an unfair prejudice petition instead of a derivative claim (for example, the broad grounds for relief, the flexible nature of the relief that may be sought, and the fact that there are fewer procedural hurdles to overcome), and there may be significant disadvantages in bringing a derivative claim (the initial procedural phases can be costly, and relief must be sought on behalf of the company). However, in certain circumstances a derivative claim may still be the most appropriate route for shareholders (for example, in the context of public companies, where a finding of unfair prejudice may be less likely).
In a derivative action, the court may order the company, for whose benefit the action was brought, to indemnify the claimant against the costs it reasonably incurs. By contrast, in unfair prejudice proceedings, the company is not usually ordered to pay any costs.
The company may be required to give disclosure in the context of derivative claims and unfair prejudice petitions. A shareholder will be entitled to disclosure of documents obtained by the company in the course of the company’s administration (where relevant), including advice by solicitors to the company about its affairs, but not where that advice relates to hostile proceedings between the company and its shareholders.
33.5 Securities litigation
As noted above, securities litigation in England and Wales is relatively under-developed in comparison with the position in the United States. However, there are a number of ways in which investors in securities can seek relief before the English courts, and in recent years there has been an increase in the volume of such litigation (due in part to the growing role of third-party litigation funders and specialist claimant law firms).
FSMA sets out the framework for financial services regulation in England and Wales. Section 90 of FSMA imposes liability on issuers and other specified persons (such as the directors of a corporate issuer) where untrue or misleading statements are made in listing particulars or a prospectus relating to certain securities, or where required information is omitted from such documents (or supplementary documents are not published when required), and loss is suffered by investors in respect of those securities as a result. A number of exemptions from such liability are set out in Schedule 10 of FSMA (for instance, where the defendant reasonably believed that the particular statement was true and not misleading, and continued in this belief until the relevant securities were acquired). Section 90A of FSMA applies to broader categories of published information relating to securities, making an issuer liable to pay compensation to investors who suffer loss in respect of those securities as a result of a misleading statement or dishonest omission in that information, or a dishonest delay in publishing information (although liability under section 90A is in some respects more restricted than under section 90 – for instance, the standard of fault under section 90A is higher, and it is necessary to show reliance). In addition, section 138D of FSMA provides a right of action for private persons who suffer loss as a result of a contravention by an authorised person of certain rules made by the FCA. Rules made by the Prudential Regulation Authority may also provide that private parties have a similar right of action. Further, a number of other provisions in FSMA (for example, sections 26, 27 and 30) can render agreements or transactions unenforceable, and give rights to recover money (or other property) and to obtain compensation, where the circumstances in which those agreements or transactions were entered into contravene certain rules in FSMA (for instance, if necessary authorisation from the FCA has not been obtained).
Aggrieved investors may also have other options, in addition to reliance on FSMA. Misrepresentation claims pursuant to section 2(1) of the Misrepresentation Act 1967 may be available to investors in circumstances where the investor enters into a contract in reliance on a misrepresentation made to them by another party to the contract, which causes loss, and where the representor did not have a reasonable belief at the time the contract was made that the facts represented were true. Investors may also be able to bring a negligent misstatement claim (in circumstances were a duty of care is owed to the investor, that duty has been breached and that breach causes the investor to suffer recoverable loss), or a claim based on the tort of deceit (which requires, among other things, proof that the defendant knowingly or recklessly made a false representation).
33.6 Other private litigation
33.6.1 ‘Tainted’ contracts
Conduct which is illegal or contrary to public policy (and which may well be the subject of an investigation) may ‘taint’ contracts entered into by a company.
The common law doctrine of illegality may prevent a party to a contract tainted by illegal conduct from enforcing their contractual rights and remedies in certain circumstances. Historically, the law in this area has been complicated and unclear, but it was recently reconsidered by nine Supreme Court justices in the case of Patel v. Mirza. The majority held that the essential rationale underpinning the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would harm the integrity of the legal system. They identified the following three factors which must be taken into account when considering whether to allow a claim which is in some way tainted by illegality:
- the underlying purpose of the prohibition that has been transgressed, and whether that purpose would be enhanced by denial of the claim;
- any other relevant public policy on which the denial of the claim may have an impact; and
- whether denial of the claim would be a proportionate response to the illegality. When considering proportionality, the majority held that (among other things) the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was a marked disparity in the parties’ respective culpability may potentially be relevant.
This approach was, however, criticised by the minority on the basis that it was too vague and too wide, converting a legal principle into the exercise of judicial discretion. It remains to be seen how the doctrine will develop in light of this important case. For instance, in some more recent decisions, the courts have continued to have reference to case law that pre-dates Patel.
Civil law bribery
If bribery has occurred, then a number of particular civil law consequences may also follow.
Civil law bribery arises in the context of agency relationships, where an agent receives a benefit which puts them in a position where their duty (to their principal) and their (personal) interest conflict. The benefit does not necessarily have to be monetary, or provided directly to the agent, and there is no need to prove motive, inducement or loss up to the amount of the bribe. The bribe need not be linked to a particular transaction (provided the agent is tainted by bribery at the time of the relevant transaction between the briber and the principal), and it may taint subsequent transactions. An arrangement will not constitute a bribe in the absence of secrecy, although it may still amount to a breach of fiduciary duty on the part of the agent if the principal’s fully informed consent is not obtained.
A variety of alternative remedies are available to a principal faced with civil law bribery.
As against the bribed agent
- If the bribe has been paid to the agent, the principal is entitled to recover the amount of the bribe (at common law, in an action for money had and received), regardless of whether the principal elects to rescind any ‘tainted’ contracts. The proceeds of bribe-taking (which comprise money or other property) will also be held on trust for the principal, and the principal will have a proprietary remedy in respect of them.
- In the alternative, the principal can claim damages in tort in respect of loss sustained by the principal in consequence of entering into any ‘tainted’ contracts.
- There may also be other consequences for the agent (including in connection with their contractual relationship with the principal).
As against the briber
- The briber is jointly and severally liable with the bribed agent in respect of the amount of the bribe, which the principal can claim in a common law action for money had and received.
- In the alternative, the briber is also jointly and severally liable with the bribed agent to the principal for damages in tort (see above).
- The principal may have an action for dishonest assistance in a breach of fiduciary duty against the briber.
- Other remedies may be available against the briber (or others) depending on the particular circumstances of the case.
Note that double recovery by the principal from the bribed agent and the briber will not be permitted.
If it can be established that bribery has occurred, then the principal is usually entitled to rescind contracts ‘tainted’ by the bribery. If the principal elects to rescind a ‘tainted’ contract, they remain entitled to recover the bribe, and they are not bound to give credit in the rescission for the amount of any bribe recovered. If the agent is bribed during the course of performance of a contract (i.e., after it has been entered into), then the principal may bring it to an end as from the moment of discovery (i.e., for the future); and the same will apply if bribery was effected at the time a ‘tainted’ contract was entered into, but (for some reason) rescission ab initio is impossible. Where an arrangement would have constituted bribery, but the principal is aware of it (so there is no secrecy) although the principal’s fully informed consent has not been obtained, then the court may award rescission of ‘tainted’ contracts as a discretionary remedy, if it is just and proportionate to do so.
Where bribes have been paid to the detriment of a third-party competitor, it has been suggested that both the briber and the company that awards the contract to the briber could be liable to the unsuccessful competitor. Further, if the contract involves a public authority, the unsuccessful competitor may have an action for misfeasance in public office.
A contract to commit bribery (as opposed to a contract procured by bribery) is ‘tainted’ by illegality, in the sense that it is illegal in performance, and is unenforceable.
33.6.2 Specific provisions in commercial contracts
Parties often include specific provisions in their commercial contracts (including finance documents) aimed at preventing, or providing contractual protection in relation to, illegal behaviour (in particular, corruption) involving a party to the agreement. Accordingly, the fact of an investigation (or related proceedings), or conduct which is the subject of an investigation, may have adverse contractual consequences for a company. These will naturally depend on the nature of both the investigation itself and the specific conduct under investigation, as well as the provisions of the contractual documentation. However, by way of illustration, many commercial contracts contain:
- to comply with certain applicable laws and regulations;
- to have in place and comply with specified policies (such as data protection, cybersecurity, slavery and human trafficking or anti-bribery and corruption policies);
- to maintain accurate records of payments made in relation to the contract;
- relating to data protection (for example, to prevent damage, or unauthorised or unlawful access, to relevant data);
- in relation to subcontractors (for instance, to ensure that subcontractors comply with requirements equivalent to those imposed on the company), and that may impose responsibility on the company for any non-compliance by a subcontractor with such requirements;
- to report generally on compliance to contractual counterparties on an ongoing basis, which could include requiring the provision of a confirmation signed by an officer of the company. Audit rights may also be granted to contractual counterparties; and
- to report the occurrence of certain events to contractual counterparties. These could include dealing with a public official in connection with the performance of the contract, receiving a request for a payment (or other advantage) in connection with the performance of the contract, or the commencement (or threat) of an investigation into the activities of the company,
- representations (given by the company, and which may be repeated) that it has not been investigated for or convicted of certain offences (and that no proceedings or investigations are pending or threatened), or which relate to the accuracy and completeness of information provided to contractual counterparties;
- termination rights for contractual counterparties if the company breaches (or, potentially, if the contractual counterparty reasonably suspects a breach of) certain obligations, or if the company makes a false representation or is convicted of certain offences; and
- indemnities (for the benefit of contractual counterparties) in respect of loss suffered as a result of a certain breaches of the contract by the company.
A company may face parallel litigation brought by its contractual counterparties in reliance on such provisions. A company may also be able to invoke such provisions against its contractual counterparties, although where a company is under investigation it may not wish to take the position in civil proceedings that its counterparty has engaged in illegal activity if the company is also exposed for its counterparty’s conduct.
33.6.3 Mergers, acquisitions and investments
Mergers, acquisitions and investments can present particular risks for companies. Illegal behaviour in the target (or its subsidiaries, or other related companies and persons) may have various negative consequences for an acquiring entity, which can include (1) financial consequences (for example, the target may have been over-valued), (2) legal consequences (both civil and criminal) for the target, the acquiring entity and relevant individuals (including officers of both entities), along with associated legal costs and (3) other practical consequences (for example, reputational damage, which may have a consequent effect on business).
As a result, acquiring entities will often take precautions to minimise these risks. Typically, these include:
- conducting proportionate pre- and post-acquisition due diligence of the target and its business;
- implementing compliance programmes; and
- including appropriate protections in the relevant contractual documentation.
In relation to the latter, warranties, representations and indemnities designed to provide such protection are frequently included in share purchase agreements (SPAs). The scope of protection will depend on the particular provisions negotiated, but they can be widely drafted, such that they encompass the conduct of, for example:
- the target and its subsidiaries;
- directors, officers, employees, significant shareholders, affiliates, agents, and distributors of the target and its subsidiaries;
- those associated with or acting on behalf of the target and its subsidiaries; and
- those who perform services for or on behalf of the target and its subsidiaries,
and may cover areas such as:
- compliance with laws generally;
- compliance with anti-money laundering laws and standards;
- compliance with anti-bribery and corruption laws and standards;
- debarment from public contracts;
- sanctions (including whether such persons are, have been, or are likely to become, subject to sanctions); and
- whether such persons are (or have been) subject to an investigation or any proceedings, or whether an investigation or any proceedings in respect of such persons are pending, threatened, contemplated, or even likely.
Accordingly, the fact of an investigation (or related proceedings), or conduct which is the subject of an investigation, may give the acquiring entity contractual rights which it can seek to enforce (including through litigation or arbitration). Again, however, care may need to be taken in doing so, for the reasons given in Section 33.6.2.
33.6.4 Defamation proceedings
A company may face defamation actions brought by individuals arising from internal investigations carried out by the company. In particular, issues may arise if it becomes necessary to negotiate an exit from the organisation for individuals involved or implicated in conduct which was the subject of an investigation.
The law of defamation is concerned with the protection of reputation. It covers the torts of libel (which concerns more permanent forms of publication) and slander (which concerns more transient forms of publication, such as speech, and generally is actionable only if special damage can be shown).
Broadly speaking, a defamatory statement is one whose publication has caused, or is likely to cause, serious harm to the claimant’s reputation, although a number of different tests have been utilised by the courts when determining whether a statement is defamatory. The statement must have been published (communicated) to a third party, and each publication will amount to a separate cause of action. Liability for publication extends to those who participate in or authorise publication, and those who re-publish or repeat the relevant statement are liable as if the statement originated from them. However, defences are available in certain circumstances to persons who publish statements and who are not the author, editor or publisher (in the sense of being a commercial publisher) of the relevant statement; as well as to website operators, if they can show that the relevant statement was posted on the website by another.
A number of defences may be available to a company facing a defamation action. For example, it may be able to rely on absolute privilege, which will exist where a statement or conduct can fairly be said to be part of the process of investigating a crime (or a possible crime) with a view to a prosecution (or a possible prosecution) in respect of the matter being investigated. This applies to statements made by persons assisting an inquiry to investigators, and by investigators to those persons or to each other. Absolute privilege will also extend beyond the criminal context, to certain enquiries made in connection with proceedings before a tribunal, the proceedings of which are protected by absolute privilege (i.e., tribunals acting in a manner similar to that in which a court of justice acts). Accordingly, the provision of information by a company to the authorities in connection with an investigation is unlikely to expose that company to the risk of a defamation action. The defence of qualified privilege will also be available in circumstances where the maker of a statement has a legitimate interest or duty in making it to the recipient, and the recipient has a corresponding interest or duty in receiving it, provided the maker is not motivated by malice. This may apply to certain communications between an employer and their employees, or between employees, that relate to the employer’s business.
A company may also be in a position to bring a defamation action against a whistleblower, given that the act of blowing the whistle will typically involve the publication of a statement that causes harm to reputation. Whistleblowers may, however, be able to make out one or more possible defences to such a claim. In particular:
- if the whistleblower can show that the statement was substantially true, this will generally constitute a defence to a defamation action; and
- whistleblowers may also benefit from the defence of qualified privilege, provided that they are not motivated by malice. It is notable, however, that the Public Interest Disclosure Act 1998 does not provide protection from a defamation action for a whistleblower, although if such an action were brought by an employer this could amount to a ‘detriment’ for the purposes of section 47B of Part V of the Employment Rights Act 1996.
In addition, a company may be in a position to bring a defamation action in relation to press comment although litigation could have the effect of drawing attention to the allegation, which is seldom beneficial.
The primary remedy in defamation actions is the award of damages, and claimants may also seek an injunction against repetition of the publication complained of. In addition, the court may order the defendant to publish a summary of the court’s judgment, and may also order others to stop distributing, selling or exhibiting material containing the relevant statement, or to remove the relevant statement from a website on which it is posted. Particular remedies are available where the claimant is granted summary relief.
Although in the past trial by jury was typical in defamation actions, the right to jury trial has recently been abolished in this context, and trial will now be by judge save in exceptional circumstances.
Unlawful behaviour (or behaviour which is contrary to public policy) may have a significant impact in the context of international arbitration, both before an arbitral tribunal and at the recognition or enforcement phase. The consequences of such behaviour will depend on whether the arbitration is ‘commercial’ or ‘investment treaty’ in nature.
In the commercial context, if allegations of behaviour which is unlawful (or contrary to public policy) are raised before the arbitral tribunal, it will have to consider the consequences under the applicable law, and may also be required to have regard to the potential impact of the mandatory law and public policy of the arbitral seat and the place of performance of any relevant agreement, as well as transnational public policy. In addition, issues can arise at the recognition or enforcement phase: there is a risk that national courts may reopen aspects of the tribunal’s findings, or consider setting aside or refusing to enforce an award on the basis that it contravenes public policy.
In the investment treaty context, if investments have been tainted by illegality or behaviour contrary to transnational public policy (for instance, corruption), investment treaty protection may not be available to an investor, either on the basis that the arbitral tribunal lacks jurisdiction or that any claim is inadmissible (although there is debate as to whether this is the correct position). Further, investment treaty arbitral tribunals in particular may face difficult questions about the relevant substantive law, the correct evidential burden and the standard of proof to apply, especially in relation to corruption allegations. Enforcement issues are, however, less likely to arise in relation to investment treaty disputes arbitrated under the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the ICSID Convention), which does not provide for the challenge of ICSID awards before national courts on traditional New York Convention grounds (which include public policy).
33.6.6 Employment law and whistleblowing
Investigations can have employment law consequences for a company. Employees may seek to bring claims against their employers arising out of the subject matter of an investigation, or how the investigation is handled; conversely, an employer may wish to take action against an employee implicated in the conduct under investigation.
In addition, to the extent that allegations have been made by whistleblowers, companies under investigation or conducting investigations should be careful to respect whistleblower rights to avoid claims for breach of the protections afforded to whistleblowers.
33.6.7 Data breaches
The General Data Protection Regulation (GDPR) has applied in the United Kingdom since 25 May 2018, and makes provision for the protection of natural persons with regard to the processing of personal data, and the free movement of such data. In addition to the penalties that may be imposed by supervisory authorities pursuant to the GDPR, which can include an administrative fine of up to €20 million or up to 4 per cent of an undertaking’s total worldwide annual turnover of the preceding financial year (whichever is higher) in respect of certain infringements, companies that are data controllers or processors may also face actions brought by data subjects in respect of infringements of their rights under the GDPR (data subjects may mandate representative organisations to bring actions on their behalf), as well as actions for compensation brought by any persons who have suffered damage as a result of an infringement of the GDPR.
Relatedly, the GDPR also requires notification of certain personal data breaches to the competent supervisory authority without undue delay, and in certain circumstances communication to the data subject is also necessary. Even in cases not involving personal data, companies may face significant regulatory consequences following cyberattacks – the FCA recently imposed a fine of £16.4 million on Tesco Bank following a cyberattack in November 2016, which did not involve the loss or theft of personal data.
Companies may also be responsible for data breaches by rogue employees. It was recently held, in the context of a group action brought by more than 5,500 employees of a supermarket company whose personal information was disclosed by the actions of a disgruntled IT auditor employed by the company, that the company was vicariously liable for the actions of that IT auditor, even though the company itself had not breached applicable data protection rules.
33.7 Evidentiary issues
33.7.1 Reliance by the court on findings made by the authorities
Parties may seek to rely on findings made by the authorities in an investigation (such as a final notice from the FCA) in subsequent civil litigation. Objections may be raised to such reliance on the grounds of admissibility – as a matter of evidence, bare findings made in earlier proceedings are ordinarily inadmissible and excluded under what is known as the rule in Hollington v. Hewthorn, although this controversial rule is subject to exceptions, and it has been held that a court can take into account the substance of underlying evidence as set out in prior decisions (giving it such weight as is appropriate). In addition, a court may allow documents containing other relevant evidence, in addition to inadmissible findings, to be put before the court, with the judge taking into account that which is admissible and ignoring that which is inadmissible.
Some investigations may result in criminal prosecutions and, potentially, convictions. In any subsequent civil proceedings, the fact of a UK conviction will be admissible in evidence for the purpose of proving, where relevant, that the convicted person committed the offence, and the information, complaint, indictment or charge sheet on which the person in question was convicted are admissible for the purpose of identifying the facts on which the conviction is based. Where criminal proceedings follow civil proceedings, ordinarily findings of a civil court on the matters in issue in the criminal case will not be admissible in those subsequent criminal proceedings, although in some circumstances civil judgments may be admissible pursuant to the rules concerning evidence of bad character.
In addition, if a company enters into a deferred prosecution agreement (DPA) with a prosecutor, this must contain a statement of facts relating to the alleged offence and the company will be required to admit the contents and meaning of key documents referred to in the statement of facts. Parties which bring civil litigation against the company may seek to rely on the contents of a DPA statement of facts as having the status of admissions by the company and may also seek disclosure of any underlying documents.
Certain specific rules apply in the competition law context. Pursuant to EU law, national courts may not make determinations which conflict with European Commission decisions on certain EU competition law issues. Where no risk of direct conflict arises, but a decision of the European Commission addresses similar subject matter to that before the national court, the European Commission decision may simply be admissible as evidence before the national court (although, given the expertise of the European Commission, it might well be regarded by that court as highly persuasive). The Damages Directive, which was implemented in the United Kingdom in March 2017, provides that final decisions of national competition authorities (or review courts) in other Member States may be presented before national courts as at least prima facie evidence that an infringement of competition law has occurred. In addition, the Competition Act 1998 (as amended) provides that findings of fact made by the CMA during the course of an investigation (which have not been appealed, or which have been confirmed on appeal) which are relevant to an issue arising in certain competition law proceedings before the High Court (or the CAT) are binding on the parties to those proceedings, unless the court (or the CAT) orders otherwise. Further, where a claim is brought before the High Court (or the CAT) in respect of an infringement decision (from the CMA, the CAT on an appeal from a decision of the CMA or the European Commission), the court (or the CAT) is bound by that infringement decision once it has become final.
33.7.2 Reliance by an authority on court findings
Matters which come to light during the course of civil litigation can have repercussions beyond the immediate context of those proceedings. They may draw the attention of the authorities, and there have been cases where authorities have relied on the findings of civil courts as grounds for taking action. For example, the FCA has previously prohibited individuals from carrying on regulated activities on the basis of findings in High Court judgments (in one instance, without conducting a separate investigation). Accordingly, these risks may be relevant considerations for a company when considering and implementing its litigation strategy in civil proceedings. In addition, conflict and privilege issues may arise if the interests of the company and its employees are not aligned.
33.7.3 Collateral use of disclosed documents
English law can impose onerous disclosure obligations on parties to civil proceedings – typically, parties are required to disclose documents on which they rely, and documents which adversely affect their case, adversely affect another party’s case or which support another party’s case (although the court may make an alternative order in relation to disclosure, and proposals have recently been made for a pilot scheme involving generally less expansive disclosure obligations to apply in the Business and Property Courts in England and Wales for two years from January 2019). In certain circumstances, parties may protect documents from inspection (for instance, on the grounds of privilege or the public interest). However, the confidentiality of a relevant document is not, of itself, a justification for refusing to disclose it, although it may be relevant to the exercise of the court’s discretion to order disclosure. Although certain recent decisions of the English courts regarding the law of privilege had pointed towards a more restrictive interpretation of the scope of the protection which it offers, the important judgment of the Court of Appeal in the ENRC case (concerning, in particular, the scope of litigation privilege in the context of a corruption investigation) suggests that this trend is beginning to change.
As a result, a company involved in civil proceedings may be required to disclose sensitive documents to an opponent, including documents relevant to an investigation or even unprivileged investigation material.
The impact of the invasion of a litigant’s right to privacy and confidentiality which the obligation to give disclosure constitutes is mitigated to some extent by CPR Part 31.22, which provides that where a document has been disclosed to a party, that party may only use the document for the purpose of the proceedings in which it is disclosed, except where:
- the document has been read to or by the court, or referred to, at a hearing held in public (although the court may make an order restricting or prohibiting the use of such a document);
- the court gives permission; or
- the party who disclosed the document and the person to whom the document belongs agree.
The court will only grant permission if there are special circumstances which constitute a cogent reason for permitting collateral use. Permission decisions are highly fact-sensitive – the proposed collateral use for the document will be relevant, and, depending on the proposed use, the court may carefully consider the particular documents in respect of which permission is sought.
If the court gives permission for collateral use, a party will be able to deploy the material outside the context of the civil proceedings. The court may make an order that they could be used in separate proceedings (including abroad). Once documents are moved outside the jurisdiction of the United Kingdom, there is a risk that they may be seized or that the party in possession of them may be compelled under local laws to produce them to third parties. Similar concerns about losing control over documents may arise where documents have been provided to regulatory or enforcement authorities during the course of an investigation. Even where documents are shared with an authority on a conditional basis, the authority may share the documents with third parties if it believes it has a statutory duty to do so. There is also the risk that the authority will be required to disclose those documents if it becomes involved in civil proceedings.
33.8 Practical considerations
33.8.1 Coordination with internal investigations team
It is important that those within the company responsible for managing parallel civil litigation are in constant communication with the internal team responsible for dealing with investigations, to ensure that:
- a clear, holistic strategy is developed for managing the investigations and parallel civil proceedings, and anticipating areas of potential risk (e.g., possible civil claims which may arise but have not yet been commenced);
- both teams understand, and evaluate the risks of, new developments in both the criminal and civil spheres; and
- any proposed action by the company or associated persons, in the civil or criminal spheres, is carefully analysed to determine the potential repercussions for all other proceedings and investigations.
Issues can arise, for instance, where:
- an authority seeks disclosure of privileged documents from the company in circumstances where the company may wish to assert privilege over those documents in subsequent civil proceedings;
- witnesses, whose testimony may be important for the company’s case in civil proceedings, are under investigation, or have been classified as suspects, by the authorities, and have concerns about self-incrimination. Depending on the circumstances, employment proceedings may also be ongoing in respect of such individuals;
- pleading possible defences (such as illegality) in civil proceedings, which may strengthen the company’s case in those proceedings but would undermine the position it has taken in relation to an investigation;
- (as part of DPA negotiations) there is a risk that matters which an authority seeks to include in an agreed statement of facts could be relied upon against the company in parallel civil proceedings. Conversely, any settlement agreement relating to civil proceedings may be disclosable to an authority as part of their investigation; or
- suspicious activity is identified in the course of civil proceedings (e.g., during disclosure) which the company is then obliged to disclose to the investigating authority.
In particular, close coordination is necessary between the company’s criminal and civil legal advisers to ensure consistency of approach.
33.8.2 Privilege waivers and disclosure obligations
During the course of an investigation, documents which attract privilege may be shown or provided to relevant authorities, often to demonstrate co-operation. These include not only privileged communications between lawyer and client but also documents, such as witness interview notes, generated by external counsel. Doing so will not necessarily constitute a general waiver of any privilege in those documents for the purposes of subsequent civil proceedings (particularly if it is made clear that this is done on a limited basis), although it may lead to adverse consequences, as the company will lose a degree of control over the information in the documents. However, care should be taken in cases involving multiple jurisdictions, as the effect of showing or providing a potentially privileged document to the authorities may vary depending upon which law governs questions of privilege.
33.9 Concurrent settlements
Difficult issues can arise for companies when attempting to negotiate settlement of global investigations, which can involve a variety of regulatory and prosecuting authorities across a range of jurisdictions. Parallel existing (or potential) civil litigation or arbitration adds a further layer of complexity to the analysis.
During settlement negotiations with the authorities, companies should be aware of the risk that the fact of a settlement, as well as any associated press coverage or documents (such as a statement of facts in a DPA), may raise awareness of potential civil claims, and in certain circumstances may even be relied upon to support such claims. This will be of particular concern in the competition law context, given the risk of follow-on actions. (Notably, the European Commission’s settlement procedure for cartel cases requires parties to acknowledge liability for an infringement.) Accordingly, and to the extent possible, companies should avoid admitting liability as part of any negotiated settlement with the authorities; and, if an admission of liability is required, they should ensure that it is tightly circumscribed.
In addition, there is a risk that communications with the authorities made during the course of settlement negotiations will be disclosable in subsequent civil proceedings, although they may be protected from inspection by a right analogous to the ‘without prejudice’ rule.
Settlement of civil claims can also carry risks for a company under investigation. There is a risk that settlement agreements entered into by the company may be disclosable in subsequent proceedings, or requested by an authority as part of their investigations. Companies should avoid admitting liability as part of any negotiated civil settlement. In addition, authorities may perceive certain types of civil settlements (particularly those with witnesses for substantial sums) as suspicious.
In appropriate circumstances, it may be possible to settle civil claims on a multi-party basis. For instance, companies may try to reach collective settlements, which are available in respect of certain competition law claims (using the mechanism set out in the Competition Act 1998), or seek to utilise a collective redress scheme.
33.10 Concluding remarks
Cross-border investigations are complex and competing considerations need to be carefully weighed and managed. The prospect of parallel civil proceedings brings further complexity to an already difficult area. Such proceedings can present numerous and diverse challenges for a company subject to investigation – it may face a range of different types of action, on a number of fronts (for instance, involving shareholders, suppliers, customers or employees), which may impact an investigation, or be affected by an investigation, in a variety of ways. Companies will frequently be defendants in parallel proceedings and unable to exercise significant control over the existence or pace of the proceedings. They may at times be claimants out of necessity or to obtain a tactical advantage. It is important to give careful consideration at an early stage to potential parallel proceedings which may arise, and any effect they may have on an investigation (and vice versa), to enable possible tensions between investigations and parallel proceedings to be anticipated and managed effectively. There is no easy solution to the challenges presented by parallel civil proceedings. As noted above, it may be difficult to obtain a stay of them (without the consent of other parties to the proceedings), and settlements can give rise to their own particular complications.
1 Edward McCullagh is an associate at Allen & Overy LLP. The author would like to thank Michelle de Kluyver (of Addleshaw Goddard LLP) for her contribution as co-author of previous editions of this chapter, and Jonathan Hitchin and India Lenon (both of Allen & Overy LLP) for their assistance with this edition.
2 CPR, Part 3.1(2)(f).
3 For example, section 9 of the Arbitration Act 1996.
4 See Akcine Bendrove Bankas Snoras (in bankruptcy) v. Antonov  EWHC 131 (Comm), .
5 R v. Panel on Takeovers and Mergers, ex parte Fayed  BCC 524, 531.
6 Panton and others v. Financial Institutions Services Ltd  UKPC 95, .
7 FSA v. Anderson  EWHC 308 (Ch), .
8 Arbitration Act 1996, section 34.
9 Arbitration Act 1996, section 33.
10 See further Zuckerman on Civil Procedure: Principles of Practice, Adrian Zuckerman, 3rd edn. (2013); Improving Access to Justice through Collective Actions, Civil Justice Council (2008).
11 Representative actions may also be brought in more limited circumstances pursuant to CPR, Part 19.7.
12 CPR, Parts 19.1 and 7.3.
13 CPR, Practice Direction 51M.
14 Dorothy Gibson v. Pride Mobility Products Ltd  CAT 9 and Walter Hugh Merricks CBE v. MasterCard Incorporated and Others  CAT 16.
15 The MasterCard decision is subject to appeal. Applications have also been made to commence collective proceedings in relation to the European Commission’s 19 July 2016 decision (Case AT.39824 – Trucks), concerning a cartel in the truck manufacturing industry.
16 FCA Final Notice to Tesco plc and Tesco Stores Limited dated 28 March 2017.
17 See further Minority Shareholders: Law, Practice and Procedure, Victor Joffe QC, David Drake, Giles Richardson, Daniel Lightman and Timothy Collingwood, 5th ed. (2015).
18 In re J. E. Cade & Son Ltd.  B.C.L.C. 213, 227.
19 See further The Securities Litigation Review, ed. William Savitt, 3rd edn. (2017).
20 The high-profile RBS Rights Issue litigation involved claims under section 90 of FSMA; and, in more recent litigation arising out of an overstatement of expected profits by Tesco plc in 2014, claims have been made under section 90A of FSMA. (See also Section 33.3.6.)
21 In addition to private enforcement, public enforcement proceedings may also be brought against companies (typically by the FCA) for breach of securities rules.
22  UKSC 42.
23 See, for example, Henderson v. Dorset Healthcare University NHS Foundation Trust  EWCA Civ 1841.
24 See further Bowstead and Reynolds on Agency, ed. Peter Watts QC, 21st edn. (2017).
25 An indemnity against a criminal liability may, however, be unenforceable for public policy reasons.
26 See further Anti-Bribery Due Diligence for Transactions: Guidance for Anti-Bribery Due Diligence in Mergers, Acquisitions and Investments, Transparency International UK (2012).
27 Companies should also be aware of the risk that illegal behaviour (for example, bribery) may occur during the merger, acquisition or investment transaction.
28 However, see footnote 25 above in relation to indemnities against criminal liability.
29 See further Gatley on Libel and Slander, eds. Alastair Mullis and Richard Parkes QC, 12th edn. (2013).
30 See further Whistleblowing: Law and Practice, John Bowers QC, Martin Fodder, Jeremy Lewis and Jack Mitchell, 3rd edn. (2017).
31 See further International Commercial Arbitration, Gary Born, 2nd edn. (2014).
32 Regulation (EU) 2016/679.
33 In the United Kingdom, the relevant authority is the Information Commissioner’s Office.
34 See GDPR, Articles 79, 80, 82 and 83. The courts recently did not permit a broad representative action against Google to proceed, in which the representative claimant sought compensation which was estimated as being in the range from £1 billion to 3 billion (Lloyd v. Google LLC  EWHC 2599 (QB)). It was argued that Google had acted in breach of a duty imposed by the Data Protection Act 1998 (allegedly by secretly tracking the internet activity of Apple iPhone users, and using and selling the accumulated data), but the court found (among other things) that, on the facts alleged, relevant damage had not been suffered, and that class members did not have the same interest.
35 GDPR, Articles 33 and 34.
36 FCA Final Notice to Tesco Personal Finance plc dated 1 October 2018.
37 Wm Morrison Supermarkets Plc v. Various Claimants  EWCA Civ 2339.
38 Hollington v. F Hewthorn & Co Ltd  KB 587.
39 See e.g. JSC BTA Bank v. Ablyazov & Anor  EWHC 1368 (Comm), .
40 Rogers v. Hoyle  EWCA Civ 257, –.
41 Civil Evidence Act 1968, section 11.
42 Crime and Courts Act 2013, Schedule 17, paragraph 5(1); Deferred Prosecution Agreements Code of Practice, para. 6.1.
43 FCA Final Notice to Mr Anthony Verrier, dated 27 January 2014; FCA Final Notice to Mr Stephen Robert Allen, dated 14 April 2015; Stephen Robert Allen v. The Financial Conduct Authority  UKUT 0348 (TCC).
44 See Disclosure Working Group Press Announcement dated 31 July 2018, accessible on www.judiciary.co.uk. These proposals remain subject to ministerial approval.
45 See, for example, The RBS Rights Issue Litigation  EWHC 3161 (Ch), and the first-instance decision in The Director of the Serious Fraud Office v. Eurasian Natural Resources Corp Ltd  EWHC 1017.
46 The Director of the Serious Fraud Office v. Eurasian Natural Resources Corp Ltd  EWCA Civ 2006; see also Bilta (UK) Ltd v. Royal Bank of Scotland  EWHC 3535 (Ch) (concerning litigation privilege) and Property Alliance Group Limited v. The Royal Bank of Scotland Plc  EWHC 3187 (Ch) (in the legal advice privilege context).
47 See Tchenguiz v. Grant Thornton  EWHC 310 (Comm) for the broad interpretation of collateral ‘use’ in relation to CPR Part 31.22, which includes, for example, reviewing documents for relevance; and see also The ECU Group Plc v. HSBC Bank Plc & Ors  EWHC 3045, in which the judge emphasised the importance of the rule in CPR Part 31.22.