Professional Privilege – Who Does Your Lawyer Represent?

Defense Chairs in Court

Defense Chairs in Court

I have previously blogged on the vital but sometimes overlooked question as to legal/professional privilege and the nasty sting in the tail it can contain for directors.

Simply stated, the issue is whether, at the time a lawyer is giving advice to a company director, he or she is doing so (wholly or partly) as that person’s own lawyer or instead as the company’s lawyer.  If the latter, the consequence may be (as things turned out for Ian Norris of Morgan Crucible) that the professional privilege protecting that advice from disclosure is later removed by the company, leaving the director vulnerable to attack.  In times of company crisis (and there are plenty of those at the moment) this can be a matter of critical importance.

A recent judgment of the High Court in R (Stewart Ford) v Financial Services Authority [2012] EWHC997 illustrates the fine line that exists between legal/professional privilege attaching to a company and that which operates in favour of individual executives.

Keydata Investment Services Limited provided marketing and sales information and products to independent financial advisers.  The Financial Services Authority was in the process of conducting an investigation into suspected breaches by Keydata of FSA rules when the company was put into administration.  The FSA then obtained disclosure from Keydata’s administrators of a substantial amount of documentation.  Keydata’s administrators obligingly waived that company’s legal/professional privilege in relation to all such documentation.  The effect of this waiver was that any emails or other documentary evidence of advice given by Keydata’s lawyers to its executives was made available to the FSA—including advice about possible contravention of FSA rules.

Having concluded its investigation, the Regulatory Decisions Committee of the FSA issued a warning notice against one of Keydata’s former executives.  That individual challenged the notice on the basis that it relied on documentation that he claimed was subject to joint legal privilege–i.e. privilege shared between Key Data and himself as an individual.

Joint Privilege, but…

On the facts of this case the High Court accepted that the legal/professional privilege was indeed joint and therefore not open to the administrators of Keydata unilaterally to waive it.  To that extent, the FSA had acted unlawfully in using such material.

The judgment, however, turned out to be of little comfort to the executive concerned, because the Court went on to decide that the use of this particular privileged material had not made any significant difference to the outcome of the investigation.  In other words, the Court concluded that the FSA would still have issued its warning notice even without reference to the privileged material.  It therefore denied the relief sought by the executive, which was that the relevant notice should be quashed.  It further denied his request that any individuals within the FSA investigatory team who had access to such material should take no further part in the claim against him.

Assume Your Company’s Lawyers Don’t Represent You

This case is another good illustration of how important it is or can be for a senior executive or director seeking legal advice from a company’s lawyers to make the working assumption that those lawyers are acting for the company alone and are not there to protect the interests of individuals.

The key point here is that the privilege and confidentiality that attaches to all such advice belongs in most cases to the company alone, and it is therefore up to the company or (if in administration or liquidation) its office holders to decide whether or not to waive such privilege.

If a director or senior executive feels the need for their own independent legal advice, they should at least make this clear to the company’s lawyers at the outset and very possibly undertake the further step of instructing independent lawyers to act for them.  There is no reason in principle why a company cannot bear the cost of such independent legal representation, although there is no obligation on it to do so. This is where D&O insurance may be able to step in to create a bridge over this uncertainty.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Directors & Officers, Financial Services | Tags: , , ,

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