The scandal surrounding Reading, Berkshire-based Keydata Investment Services seemed custom-made for salacious U.K. tabloid headlines. It featured a highflying founder, outsized executive paychecks, massive shareholder losses, allegations of fraud and a company collapse predicated on its peddling of “death bonds,” or repackaged American life insurance policies, which began to backfire when those Americans failed to die on schedule. While it provided fewer juicy headlines, Keydata’s recent courtroom pit stop in R (Ford) v. Financial Services Authority has provided England with much-needed clarity on joint interest privilege.
The U.K.’s Financial Services Authority (FSA) declared Keydata insolvent in June 2009 and put the company into administration. PricewaterhouseCoopers (PwC) was appointed administrator, and as part of its investigation into Keydata, the FSA compelled PwC to produce Keydata emails. In March 2010, PwC agreed to waive Keydata’s privilege with respect to certain emails and attachments containing advice from an accountant as well as legal advice from the law firm Irwin Mitchell.
In August 2010, Keydata Founder and Director Stewart Ford, the claimant in this case, discovered the FSA was in possession of these emails only when he was served with an FSA Supplementary Investigation Report that referred to the emails’ content. Ford, fellow Keydata Director Mark Owen and Compliance Officer Peter Johnson, all believed the material in question was privileged in their hands, as well as in Keydata’s. Ford, with Owen and Johnson as interested parties in the case, filed for judicial review to the Administrative Court of the High Court of Justice of England and Wales – Queen’s Bench Division.
The court’s ruling provided a test to determine whether joint interest privilege exists where there is no joint retainer, providing guidance to companies, lawyers and the FSA (see “Useful Review”) as to how they handle issues surrounding potentially privileged materials.
“For the first time we have some contemporary judicial guidance about when joint privilege arises,” says Patrick Robinson, a partner at Linklaters in London. “It clarifies quite a lot. It’s an area that has always been quite murky if there is no agreement upfront as to whether or not it’s intended that joint interest exists.”
Joint interest privilege exists to preserve the confidentiality of legal communications made for the benefit of more than one person—in this case, the executives claimed that advice was given to benefit not just Keydata but the individual executives. The court ultimately found that Ford had established that he had joint legal advice privilege with Keydata with respect to two emails concerning legal advice from Irwin Mitchell. The ruling may be a blow to the FSA’s investigation into Keydata, although it’s hard to say, because the content of the emails has been guarded. At press time, the court had not yet ruled on what consequences the FSA would face for using the material.
But the legal analysis the court had taken was clear: The Administrative Court set forth the standard that any individual claiming joint privilege needs to establish five facts by evidence:
1. That the individual communicated with the lawyer for the purpose of seeking advice in an individual capacity
2. That the individual made clear to the lawyer that he was seeking legal advice in an individual capacity, rather than only as a representative of a corporation
3. That those with whom the joint privilege was claimed knew or ought to have appreciated the legal position
4. That the lawyer knew or ought to have appreciated that he was communicating with the individual in that individual capacity
5. That the communication with the lawyer was confidential
In crafting the standard, the court considered U.S. and Australian approaches to establishing joint interest privilege, but ended up with a test that lies somewhere in between those extremes. The directors cited Australian case law to contend that joint interest is established when the person seeking to rely upon it had a reasonable belief at the time the communication was made that it was for the purpose of giving him legal advice. The court rejected that argument.
On the other end of the spectrum, the FSA submitted the American approach: that once a corporation retains lawyers, officers of the corporation cannot prevent it from waiving privilege on advice concerning its affairs or those of its officers, even if the officers’ personal affairs are “inextricably intertwined” and they were being given advice at the same time.
In the Keydata case, the court rejected the U.S. approach, as outlined by the 3rd Circuit in the 1986 case In the Matter of Bevill, Bresler & Schulman Asset Management Corporation. “The judgment [in that case] makes plain that the approach has been informed by public policy considerations”—namely, the U.S. Bankruptcy Code’s goal of uncovering insider fraud—“which form no part of the law in this jurisdiction,” the court wrote.
Shane Gleghorn, head of the Financial Disputes group at Taylor Wessing in London, says that while the U.S. and English law on this point diverge, the practical measures that companies, lawyers and executives take in response to both countries’ approaches are likely to be similar.
“As the judge says in his decision, the practical lesson here is that you need to make very clear in your retainer letter whom it is you advise, and if you’re advising two sets of parties, you should make that very clear and have a mechanism for resolving any conflict that may arise between their respective interests in the future,” he says. “The practical lesson would be one that anyone would recommend in almost any jurisdiction, and certainly in the U.S. and England.”
The case also provides a reminder of best discovery practices.
To ensure that its investigators did not see privileged materials in the emails, the FSA had PwC’s IT specialists conduct keyword searches to identify any potentially privileged communications. Caroline Edwards, a partner at Travers Smith, says it’s prudent to ensure that documents and emails intended to be privileged are clearly labeled as such so they are readily identifiable as privileged by keyword searches.