Bank Ordered To Disclose Privileged Documents In LIBOR-Related Civil Proceedings

The English High Court has determined that if a firm, in subsequent civil proceedings, puts in issue the basis of published findings against it by the FCA, that firm will risk being required to disclose privileged material on which those findings were based.

The most recent decision of Mr Justice Birss in the case of Property Alliance Group Limited ("PAG") v Royal Bank of Scotland Plc ("RBS")1 has a number of wide-ranging implications for firms wishing to claim privilege over documents created as part of internal and external regulatory investigations.2

The most important aspect of the Court's decision relates to the circumstances in which the content of privileged material, including 'without prejudice' communications generated as part of settlement discussions with regulators, may be ordered to be disclosed to a third party in subsequent civil proceedings.

BACKGROUND

On 6 February 2013, the UK Financial Services Authority ("FSA") (as the FCA was then known)3 published a Final Notice recording its detailed findings that RBS had "undermined the integrity of LIBOR",4 as a result of misconduct that had occurred in relation to RBS' Japanese yen ("JPY"), Swiss franc ("CHF") and US Dollar LIBOR submissions between January 2006 and March 2012 (the "Final Notice"). Consequently, the FSA imposed a penalty of £87.5 million on the bank. This penalty was discounted from £125 million due to RBS having "agreed to settle at an early stage of the FSA's investigation".5

PAG subsequently brought proceedings against RBS in the English High Court claiming that it had been mis-sold four interest rate swaps by RBS between 2004 and 2008. Each of those swaps was referenced to the 3 month Pound Sterling ("GBP") LIBOR rate. PAG contends that, in proposing LIBOR as a reference rate for those swaps, RBS had impliedly represented that it was not manipulating that rate for its own ends.6 PAG now alleges that representation to have been false. In its Defence, RBS denies misconduct in the setting of GBP LIBOR, including 3 month GBP LIBOR,7 relying on the fact that "there have been no regulatory findings of misconduct on the part of RBS in connection with GBP LIBOR".8

The most recent judgment of the English High Court in the proceedings concerns an interim application by PAG for the disclosure of various categories of documents over which RBS had claimed legal privilege.9

'WITHOUT PREJUDICE' SETTLEMENT NEGOTIATIONS WITH THE FCA

In an important decision,10 following detailed examination of the FCA's enforcement process,11 the Court endorsed RBS' prima facie right to withhold inspection of any communications passing between RBS and the FSA which were marked 'without prejudice' and occurred in connection with the settlement negotiations regarding the issue of the Final Notice:12

"...a firm the...