RBS required to disclose confidential regulatory investigation documents

CollyerBristow.Com 29 July 2015

The High Court has recently issued several decisions in the case of Property Alliance Group Ltd v Royal Bank of Scotland and has ruled that RBS has to disclose confidential documents that it claimed were privileged.

Property Alliance Group (PAG) is bringing a claim against RBS over the alleged mis-sale of four interest rate swaps that PAG entered into with the bank. These swaps used British pound sterling (Sterling) LIBOR as a reference rate and part of PAG’s claim is that PAG should be entitled to damages for the unlawful manipulation of LIBOR by RBS and that RBS impliedly represented that it was not manipulating LIBOR at the time the company entered into the swaps.

This is one of a number of cases going through the courts at the moment in which LIBOR manipulation and its effect on interest rate hedging transactions is a core issue.


Following regulatory investigations in the UK, USA and Japan, the regulators, including the then Financial Services Authority (FSA) and the US Department of Justice, published their findings that RBS had manipulated Japanese Yen LIBOR and Swiss Franc LIBOR.

In their defence to the PAG claim, RBS put forward a positive assertion that there had been no finding by the regulators that they had manipulated Sterling LIBOR as well. PAG argued that it followed as a consequence of this assertion that RBS should be required to disclose the documents relating to the settlements with the regulators in order to prove that it had not been found to have manipulated Sterling LIBOR.

Accordingly, in November 2014, the High Court (Mr Justice Birss) ordered RBS to disclose internal reports and other internal documents relating to LIBOR manipulation and the investigations into the alleged LIBOR misconduct. RBS duly produced a disclosure list but objected to the inspection by PAG of the vast majority of documents it had listed on the grounds of without prejudice privilege, legal advice privilege and litigation privilege.

The issue of privilege

The matter came before Mr Justice Birss again in May 2015 and arguments were made by both parties about whether the LIBOR materials were privileged. RBS argued that the following documents were privileged and should not be provided for inspection:

  1. Documents relating to RBS’s Executive Steering Group investigation into rate setting on the grounds that these were protected by legal advice privilege;
  2. Communications between RBS and the FSA before a FSA Final Notice of 6 February 2013, on the grounds that these attracted without prejudice privilege; and
  3. Documents provided to regulators in the USA and Japan on the basis that these documents were subject to legal advice privilege and litigation privilege.

PAG challenged all of these arguments and, in an important ruling, successfully persuaded Mr Justice Birss that the documents should be open to inspection by PAG.

As to the documents regarding the work of the Executive Steering Group, the judge found that RBS had not provided sufficient information about the work of the group for the Court to conclude that the documents would be covered by legal advice privilege. The Court directed that it would inspect these documents to form a more conclusive view about the extent to which they should be provided for inspection.

Mr Justice Birss held that the communications with the FSA would normally be covered by without prejudice privilege because the subject of an FSA investigation is entitled to withhold communications relating to settlement discussions with the regulator. Were this not so, parties would be less likely to provide information to the regulator and ultimately reach a settlement. However, he decided that this case was different because, RBS had relied in their Defence on the regulator’s findings as proof that it had not manipulated Sterling LIBOR. In doing so, RBS had waived privilege in relation to these documents and he ruled that it would be unjust for the bank to be allowed to rely on the findings of the regulator when PAG was not able to inspect the documents and communications that formed the basis of those findings.

In relation to the final category of documents, those provided to other regulators, it was held that RBS was entitled to claim that these documents were privileged unless and until such time as they were published by any of the regulators to which they had been provided. However, again, the court decided that RBS had waived privilege by expressly referring to the findings of the regulators in its Defence.

The effect of the judgment

This is an important judgment for those considering or in the process of bringing claims relating to LIBOR manipulation where the bank in question has been found by the regulators to have manipulated LIBOR. The case does not, however, provide a blanket rule that banks will be required to disclose discussions with the Financial Conduct Authority (FCA) and with regulators in other jurisdictions. Whether they will be required to do so will depend on the circumstances of the case and the particular wording of the bank’s pleadings. It is likely that other banks will now be careful to avoid making the same pleading mistake as RBS.

Early indications suggest that, to avoid having to disclose the documents as ordered by the judge, RBS will ask the court for permission to amend its defence to remove the wording which the judge has decided was a waiver of privilege. The outcome of this is awaited.

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