Maximising privilege protection under US and English law
When learning of a potential regulatory issue - whether through receipt of an information request from the authorities or through an internal mechanism - a firm will usually conduct an internal investigation, whose purpose is to understand the scope of the issue, remediate the problem, and to formulate a response to regulators, civil plaintiffs and other constituencies.
It is imperative that the internal investigation be conducted so as to maximise the protections of legally applicable privileges. If the privilege is protected from the outset, the company can then determine the extent to which privileged materials should be withheld from regulators or civil plaintiffs or the extent to which the company will waive the privilege.
This chapter examines the differences in approach to privilege issues under US and English law, and suggests some measures companies can take to maximise the privilege protections in the conduct of internal investigations.
Privilege in the US - applicability of privilege doctrines to internal investigations
Under US laws, there are two key types of privileges: the attorney-client privilege, and the attorney work-product doctrine.
The attorney-client privilege
The attorney-client privilege protects from disclosure confidential attorney-client communications for the purpose of giving or receiving legal advice. In the context of an internal investigation, attorney-client privilege will be available where one of the significant purposes of the internal investigation was to obtain or provide legal advice.1 In a landmark decision, a US federal appellate court held that:
In the context of internal investigations, if one of the significant purposes of the investigation was to obtain or provide legal advice the privilege will apply. That is true regardless of whether an internal investigation was conducted pursuant to a company compliance program required by statute or regulation, or was otherwise conducted pursuant to company policy.'2
It is well established that under US laws, attorney-client privilege can apply to any employee of a company directly involved in providing information for the company's attorneys to use in advising the company (in contrast to the English law position, discussed below). As a result, notes of witness interviews carried out by counsel with employees of their client company will generally be regarded as protected by attorney-client privilege.3 This issue was examined in the recent General Motors case, in which the court considered an application by plaintiffs in a product liability dispute for access to interview notes underlying an internal investigation report prepared by General Motors' counsel but then provided to regulators and made publicly available.4 The court determined that the interview notes were protected under both the attorney-client privilege and work product doctrine because the interviews were conducted to assist counsel in providing legal advice to the company and in contemplation of litigation. The court held that privilege covering the interview notes had not been waived by General Motors' public disclosure of external counsel's investigation report. Since General Motors had produced a significant volume of additional documentation to the plaintiffs, the court found that the case did not present ‘the unusual and rare circumstances in which fairness requires a judicial finding of waiver with respect to related, protected information.'
However, the court's holding in General Motors is not without limits. In a closely watched employee retaliation case filed by the General Counsel of Bio-Rad, a life science company, claiming that the company wrongfully terminated him for reporting certain misconduct to the audit committee, a district court in California has declined to follow General Motors to grant privilege protection to work products generated in the internal investigation conducted by outside counsel examining the alleged misconduct, claiming that the company cannot use the conclusion from the investigation offensively at trial to defeat the plaintiff's retaliation claim while precluding the plaintiff from presenting related communications to rebut this evidence.5
The attorney-client privilege also generally extends to protect communications between an attorney and third-party experts working on an investigation, provided the investigation is being directed by counsel. However, there have been outlier cases where protection has been lost. For example, in Wultz v Bank of China Ltd, the plaintiffs sought disclosure of documents relating to an internal investigation conducted by a bank's compliance team.6 The court found that there was no evidence that the documents had been created ‘at the "direction" of an attorney in order to allow the attorney to render legal advice' but that the investigation was instead carried out by non-lawyers, and therefore rejected the bank's privilege claim.
The attorney work-product doctrine
The work-product doctrine protects attorneys' mental impressions formed, conclusions reached or legal theories developed in anticipation of litigation. The work-product doctrine does not, however, offer a complete protection from disclosure. To the extent that an attorney's work contains relevant and non-privileged facts, it is disclosable in cases where the plaintiff has a substantial need for the information and cannot otherwise obtain equivalent information without undue hardship.
The US adopts a broad interpretation of the requirement that litigation be anticipated. Thus, courts have routinely held that an ‘investigation by a federal agency presents more than a remote prospect of future litigation' for the purposes of the work-product doctrine.7 However, any materials alleged to be the subject of work-product protection must have been prepared because of such litigation. In Wultz, the court held that the documents were also outside the scope of work-product protection since the bank did not demonstrate that the investigation had been carried out because of litigation; the company's internal procedures would have required that an investigation be carried out, and documents produced in the same way, without any threat of litigation.
Privilege waiver as cooperation with US authorities
The extent to which US authorities make ‘credit' for cooperation conditional on a company's willingness to waive the privilege has been a subject of intense debate over recent years. The current version of the US Attorney's Manual (USAM) states that waiving the attorney-client or attorney work product protections is not a prerequisite under the Department of Justice's prosecution guidelines for a company to be viewed as cooperative. In fact, the current version of the manual states that ‘while a corporation remains free to convey non-factual or "core" attorney-client communications or work product - if and only if the corporation voluntarily chooses to do so - prosecutors should not ask for such waivers and are directed not to do so.'8 Eligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection but rather on the company's disclosure of relevant facts.
The enforcement manual of the Securities and Exchange Commission (SEC) states that staff ‘may not ask a party to waive the attorney-client privilege or work product protection without prior approval of the Director or Deputy Director.'9 It also notes that voluntary disclosure of information ‘need not include a waiver of privilege to be an effective form of cooperation.' While the guidance sounds similar, in practice, it is more common for the SEC staff to have an expectation that the company will be willing to waiver privilege than for the criminal authorities to do so. Companies should nevertheless understand that if it provides privileged materials to the SEC, the privilege will be waived for these materials in its entirety, meaning that the criminal authorities and civil litigants can also access these materials later.
The above guidance would suggest that companies self-reporting to US regulators have fewer incentives to make disclosure of privileged material. Nonetheless, extensive disclosure of facts may lead to an argument that there is a subject matter waiver that applies in general to a broad range of communications and work products created in the internal investigation process. This aggressive argument has at least been successful in the Bio-Rad case, in which the court held that a 41-page powerpoint presented by Bio-Rad's outside counsel to the SEC lead to the waiver of privilege of other documents when fairness requires so.10
A decision to waive privilege in the US may have far-reaching consequences. The US courts have generally refused to recognise limited or selective waivers of privilege.11 Therefore, any waiver of privilege over investigation documentation to a regulator may result in a complete loss of privilege as against third parties. When disclosing documents, parties should insist that there is no general subject matter waiver and it reserves the right to claw back any inadvertent disclosure.
Privilege in England and Wales
English law recognises two main heads of privilege: the legal advice privilege, which applies to confidential communications between a lawyer and client for the purpose of giving or receiving legal advice; and the litigation privilege, which applies to confidential communications between the lawyer and client, or between either of them and a third party, for the sole or dominant purpose of gathering evidence for use in legal proceedings, or for giving legal advice in relation to such proceedings. Litigation privilege only applies where litigation has commenced or is reasonably anticipated. While these two concepts are broadly analogous to the US attorney-client privilege and work product doctrines, there are some important differences.
The legal advice privilege
The legal advice privilege is similar to the US attorney-client privilege in that it protects communications for the purposes of giving and receiving legal advice. However, the doctrine is narrower because it only covers lawyer-client communications and therefore does not protect communications with a third party. In an investigation, this means that reports prepared for a company by third parties (such as forensic accountants or IT experts) will not be protected by legal advice privilege (although they may be covered by the litigation privilege). The Supreme Court confirmed in 2013 that the legal advice privilege does not apply to any professional other than a qualified lawyer, rejecting an argument that documents containing legal advice on tax matters from an accounting adviser were privileged.12
An important limitation of the legal advice privilege is the limited definition of ‘client' established by the English courts. The Court of Appeal's decision in Three Rivers (No. 5) placed restrictions on who may be considered to be the client and gives rise to uncertainty over the scope of legal advice privilege for corporate clients.13 The Court of Appeal limited the definition of the ‘client' to the small group of employees who had been given responsibility for coordinating communications with the lawyers, meaning that all other employees were regarded as third parties and that legal advice privilege could not be claimed over their communications. The Court of Appeal's reasoning was not followed in other Commonwealth jurisdictions, but in 2016 and 2017, a series of High Court decisions found that solicitors' interviews with client company employees were not covered by legal advice privilege, as the employees in question did not form part of the ‘client' for privilege purposes.14 In particular, in the RBS case, the High Court noted that the effect of Three Rivers was to limit the ‘client' to those authorised to seek and receive legal advice on behalf of the client corporation, and that the authority to provide information to the lawyers was not sufficient for these purposes. Although the High Court did not consider it necessary to determine the question of whether the ‘client' should be regarded as comprising only those individuals who represent the ‘directing mind and will' of the client, the judge (Hildyard J) did suggest that he inclined to this view. The narrow view taken in the RBS case was subsequently endorsed in the ENRC case discussed below.
In the RBS case, the High Court also discussed the extent to which interview notes may be regarded as subject to legal advice privilege, even where the interviews themselves are not (applying the restrictive interpretation of ‘client' outlined above) on the basis that the interview notes form part of the lawyers' working papers. The judge concluded that, in order to be protected by legal advice privilege, there must be some attribute of the notes which distinguished them from verbatim transcripts of the interviews. He found that RBS had not demonstrated that this was the case on the evidence. However, in appropriate circumstances, it may be possible to argue that interview notes are subject to legal advice privilege on the basis that they give a clue as to the trend of lawyers' advice.
It is therefore advisable for companies conducting internal investigations to consider expressly nominating the individuals who will be responsible for directing outside counsel. To the extent that interviews are conducted with individuals outside the nominated ‘client' group, these are unlikely to be covered by the legal professional privilege (since they are communications between a lawyer and third party) and notes of such interviews may be disclosable, unless litigation privilege applies.
The litigation privilege
In the context of internal investigations, there are substantial limitations on the scope of litigation privilege. The scope of this doctrine is unclear in the context of regulatory investigations since the litigation privilege has been held only to apply in circumstances where the contemplated proceedings are adversarial, rather than inquisitorial.15 This distinction was considered by the Competition Appeal Tribunal (CAT) in 2012 in the context of an investigation involving the Office of Fair Trading (OFT) and Tesco.16 The CAT determined that the proceedings were ‘sufficiently adversarial' by the time the company began to gather its evidence since the OFT had already issued two ‘statements of objections' alleging competition violations and Tesco was contesting the OFT's case. Some commentators have sought to apply this decision to other regulatory investigations by analogy arguing, for example, that a Financial Conduct Authority (FCA) investigation in which it has issued a warning notice would likely be regarded as ‘sufficiently adversarial' in the same way as the OFT proceedings.
The English courts have, however, recently considered whether a criminal investigation by the Serious Fraud Office (SFO) satisfied the ‘litigation' limb of the test for litigation privilege. In SFO v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (QB), the High Court found that the test of whether litigation is in reasonable contemplation is not met just because a criminal investigation is contemplated. Only a prosecution, not an investigation, amounts to ‘litigation' for these purposes, and contemplation of a criminal investigation does not necessarily equate to the contemplation of a prosecution. Prosecution only becomes a real prospect once it is discovered that there is some truth in the allegations, or at least some material to support them. Press reports indicate that ENRC may appeal this decision but, as things currently stand, it may be difficult to support a claim that litigation privilege applies to documents produced in relation to a criminal investigation in its early stages.
A second limitation on the scope of the litigation privilege arises in the context of the ‘dominant purpose' requirement. The English courts highlighted the narrow scope of this requirement in a recent case involving the production of reports prepared by a firm of accountants on the instruction of joint liquidators of a group of companies owned by the Tchenguiz brothers and used to hold investments and carry out derivatives and futures trading.17 The liquidators provided the reports to the SFO in connection with its investigation into the brothers. The Tchenguiz brothers subsequently brought a claim against the SFO for allegedly unlawful raids on their premises and sought disclosure of the reports. The liquidators argued that the reports were covered by litigation privilege. The Court of Appeal held that it was not possible to establish that the reports were prepared for the dominant purpose of litigation where they had been commissioned for dual purposes: both to obtain advice in relation to litigation and to carry out the liquidators' statutory duty to assess the relevant companies' assets and liabilities. The Court of Appeal stated that the real difficulty was that ‘in circumstances which call for clarity and precision' the liquidators had ‘made no effort to grapple with the obvious need to establish which of dual or even multiple purposes was dominant if a plausible claim to privilege was to be made out.'
The ENRC case also considered the ‘dominant purpose' test, finding that, even if litigation was in reasonable prospect at the time, documents prepared in connection with ENRC's internal investigation had not been prepared for the dominant purpose of that litigation. Instead, the primary purpose was to find out if there was any truth in allegations made by a whistleblower and (if there was) to decide what to do.
In the context of internal investigations, the onus will be on the party seeking to assert litigation privilege to establish that litigation was the ‘dominant' purpose. It may be difficult to claim litigation privilege over documents created as part of an internal investigation in certain circumstances, for example those prepared in connection with an investigation conducted: pursuant to a regulatory or statutory obligation; for the purpose of reporting to shareholders; or to respond to complaints where it is unclear that the complainant intends to bring legal proceedings. The result of the ENRC case is that it is likely to be easier to establish that litigation privilege applies in the context of civil proceedings. However, where a criminal investigation is under way but no proceedings have been commenced, this judgment would suggest that litigation privilege will not be available in respect of documents prepared in connection with that investigation.
Waiver of privilege as a ‘badge of cooperation' in the UK?
Recent statements by UK regulators have demonstrated a determination that companies waive the privilege over their internal investigations to demonstrate cooperation. For example, senior SFO officials have suggested that they intend to take a more aggressive approach to claims of privilege by companies who self-report serious fraud or corruption. The recent High Court decisions in relation to privilege are likely to make privilege claims more difficult to justify in the context of internal investigations.
In public speeches, senior SFO personnel have expressed their displeasure with broad assertions of privilege by companies seeking to cooperate with the SFO in the interests of obtaining a favourable resolution, especially where the privilege is asserted to cover a witness's first account (or initial interview). For example, in a 2015 FCA speech on internal investigation, Jamie Symington, Director in Enforcement, said:
A practice we sometimes see is for the investigation to produce only lawyers' notes of such interviews. No recordings, no notes by others including the interviewee. Then firms will sometimes argue that the notes of the interview are privileged. This sort of approach looks to us like a ‘gaming' of the process in order to shroud the output of an investigation in privilege. We find it particularly unhelpful and unwelcome.18
This sentiment was echoed by the SFO's General Counsel, Alun Milford, in March 2016, where he noted that the SFO does not regard itself as constrained from asking for underlying facts even if they are privileged, and the SFO will view as uncooperative false or exaggerated claims of privilege, and is prepared to litigate over them.19 This is consistent with the SFO's statement on the self-reporting process which indicates that ‘all supporting evidence including but not limited to emails, banking evidence and witness accounts' must be provided as part of the self-reporting process.20
Under English law (in contrast to the US position), provided that confidentiality is not waived in respect of privileged communications, privilege can be maintained against the rest of the world following a specific waiver in favour of a regulator or third party.21
Conclusions for multinational investigations
We have set out in this chapter some of the key differences between US and English law in relation to the availability of privilege claims in internal investigations. Managing internal investigations that involve multiple jurisdictions necessarily involves the consideration of complex issues arising from different legal systems and regulatory expectations. Differing privilege standards are a key area to consider when managing a cross-border investigation. In light of the increased cooperation and information-sharing between different regulators, a company cooperating with one body should expect to share the same information with investigatory agencies in different countries. In this context, privilege issues should be considered with great care since a limited waiver of privilege when providing information to one regulator (in line with its expectations of cooperation) may lead to collateral privilege waivers in respect of other regulators in other jurisdictions.
As companies conduct internal investigations, they should:
involve counsel at the outset of the investigation and ensure that counsel is responsible for directing the investigation;
create a written record demonstrating that the investigation is being conducted for the purpose of the company obtaining legal advice in connection with anticipated litigation;
ensure that all non-legal advisers are retained or supervised by counsel overseeing the investigation;
ensure that the record reflects that key decision-makers at the company are within the client group so that there is no doubt that their communications with counsel are protected;
in creating written reports of the investigation or witness interviews, be mindful of the distinction between ‘facts' on the one hand, and ‘legal advice, mental impressions or analysis' on the other hand, and consider whether the written reports will be protected under the privilege laws in each jurisdiction that the company can face potential litigation or enforcement actions; and
take steps to avoid inadvertent waiver by ensuring the investigation and any related documents or reports are treated as confidential and not disclosed outside the investigation team.
Companies conducting internal investigations should strive to protect the privilege at the outset so as to retain the flexibility to decide later whether and to what extent a privilege waiver is advisable. Where a company has structured its internal investigation to maximise its privilege, the company will have more control over how and when to disclose the relevant information.
Summary of key differences between US and English privilege law
Internal investigations with multiple purposes
Protected by attorney-client privilege where one of the purposes is to obtain or provide legal advice.
Litigation privilege not available unless the investigation's dominant purpose relates to litigation. Company will instead be reliant on legal advice privilege which only protects lawyer-client communications.
Internal investigations in response to government inquiries
Government investigations present sufficient possibility of litigation for work product doctrine to apply. Also protected by attorney-client privilege.
Unclear whether certain regulatory investigations are sufficiently adversarial to invoke litigation privilege. Litigation privilege unlikely to be available unless and until criminal proceedings are commenced.
Protection of communications with third parties
Protected where documents prepared by third parties who are retained or supervised by counsel and their work is to enable counsel to advise the company.
Protected by litigation privilege if communications are for the dominant purpose of litigation which is reasonably in prospect; otherwise legal advice privilege only protects lawyer-client communications.
Treatment of employee interview notes
Protected by attorney-client privilege where interviews carried out by or at the direction of counsel and protected by work product doctrine where the interviews are conducted in anticipation of litigation.
Protected if litigation privilege is available. Unclear that legal advice privilege will apply unless interviewees are part of the ‘client' group, or if the interview notes are part of lawyers' working papers.
Availability of selective waiver when documents disclosed to regulator
Not generally available.
Generally available provided documents remain confidential.
Regulatory expectations around waivers
Regulators are generally limited as to when they can request a waiver, but they can request disclosure of all ‘relevant facts'.
Regulators view a privilege waiver as an indication of cooperation, particularly in relation to first accounts.
- See Upjohn Co. v United States, 449 U.S. 383 (1981); see also In re Kellogg Brown & Root Inc., 756 F. 3d 754 (D.C. Cir. 2014); but see Wultz v Bank of China, 304 F.R.D. 384 (S.D.N.Y., 2015) (holding that internal investigation documents were not protected by attorney-client privilege when none of the documents consisted of communications between bank and one of its attorneys, and none of the documents were produced at the direction of an attorney in order to allow the attorney to render legal advice).
- In re Kellogg Brown & Root Inc. 756 F. 3d at 760.
- See Upjohn, 449 U.S. 393 (1981) in which the Supreme Court stated that ‘privilege exists to protect not only the giving of professional advice to those who can act on it but also the giving of information to the lawyer to enable him to give sound and informed advice.'
- In re General Motors LLC Ignition Switch Litigation, 80 F.Supp.3d 521 (S.D.N.Y. 2015).
- See Wadler v Bio-Rad Labs., 212 F.Supp.3d 829, 852 (N.D. Cal. 2016).
- 304 F.R.D. 384.
- Pacamor Bearings v Minebea Co., 918 F. Supp. 491, 513 (D.N.H. 1996).
- USAM 9-28.710.
- SEC Enforcement Manual, 4 June 2015: www.sec.gov/divisions/enforce/enforcementmanual.pdf.
- See Walder, 212 F.Supp.3d at 852.
- Some federal circuit courts have left open the possibility that selective waivers could be possible in particular circumstances. For examples of circuit courts that have rejected the concept of selective waiver, see In re Pacific Pictures 679 F.3d 1121 (9th Cir. 2012) and Westinghouse Electric Corp. v Republic of the Philippines 951 F.2d 1414 (3rd Cir. 1991). The Eighth Circuit expressly permitted a selective waiver in the form of disclosure to the SEC in response to a subpoena in Diversified Industries v Meredith 572 F.2d 596 (8th Cir. 1978).
- R (on the application of Prudential plc and another) v Special Commissioner of Income Tax and another  UKSC 1.
- Three Rivers District Council and others v The Governor and Company of the Bank of England  EWCA Civ 474.
- See Astex Therapeutics v Astrazeneca  EWHC 2759 (Ch); see also The RBS Rights Issue Litigation  EWHC 3161 (Ch).
- In re L (a Minor) (Police Investigation: Privilege)  AC 16.
- Tesco Stores Ltd v Office of Fair Trading  CAT 6.
- Rawlinson and Hunter Trustees SA v Akers  EWCA Civ 136.
- Jamie Symington, ‘Internal Investigation by Firms,' Speech on 5 November 2015, available at www.fca.org.uk/news/speeches/internal-investigations-firms.
- Alun Milford, ‘Speech to Compliance Professionals,' on 29 March 2016, available at www.sfo.gov.uk/2016/03/29/speech-compliance-professionals/.
- See Gotha City v Sotheby's  1 WLR 114, in which privileged information was found to remain so after it had been shared with a third party on the understanding that they would keep the communications in confidence, and Property Alliance Group v The Royal Bank of Scotland plc  EWHC 1557 (Ch), in which documents provided to regulators on a confidential ‘non-waiver' basis and pursuant to agreements under which privilege and confidence were expressly maintained remained privileged as against a civil litigant.