March 16, 2007
Questions have arisen in England concerning the production of documents, created in the context of an investigation by the chief regulatory body in the UK, the Financial Services Authority (the FSA), in subsequent legal proceedings. On 9 March 2007, the English Court of Appeal confirmed that documents created by the FSA are not always protected from production in court proceedings. This guide outlines the relevant statutory rules and the recent Court of Appeal decision.
Obligations of production of documents in court proceedings
Unlike in the US, in civil litigation before the English courts, the categories of documents that must be disclosed are governed by automatically applicable rules. These rules stipulate that a party must disclose any document which is or has been in his control if it is a document:
1. on which he relies;
2. which adversely affects his own case;
3. which adversely affects another party’s case; or
4. which supports another party’s case . 1
However, under English law, there is an important distinction between disclosing documents and providing documents for inspection. For example, privilege gives the relevant party the right to withhold a document from inspection, but does not protect the document from disclosure (generic details of the class of documents and the grounds on which the party is withholding the document from inspection must be provided to the opposing party in the litigation) . 2
Statutory prohibition on breaching confidentiality
The Financial Services and Markets Act 2000 (the FSMA) introduced a new regime for the regulation of the financial services industry, with the FSA as the sole regulatory body with responsibility for supervision, authorisation and investigation.
Section 348 of the FSMA imposes strict confidentiality obligations in respect of information received by the FSA in connection with the discharge of its statutory functions. The general rule is that information, which relates to the business or affairs of any person and which is obtained by the FSA in the discharge of its regulatory functions (defined as "confidential information") or which is obtained by any person directly or indirectly from the FSA, may not be divulged without the consent of:
(a) the person from whom the FSA obtained the information; and
(b) if different, the person to whom it relates. 3
It is a criminal offence for a person to divulge "confidential information" in breach of the statutory restriction.
Section 348 of the FSMA is important because obligations of confidentiality, alone, are not sufficient to prevent the disclosure and inspection of documents required by the court rules: the court rules override any contractual confidentiality restrictions. In contrast, the statutory protection in section 348 of the FSMA, with its criminal consequences, does override the court rules requiring inspection (but not disclosure) of documents. Since section 348 only applies to "confidential information" as defined, a person is required to permit inspection in legal proceedings of material that has been created by a person and provided to the FSA in the context of a regulatory investigation (although it would be subject to the statutory protection in the FSA’s hands). Conversely, material created by the FSA and provided by the FSA to a party is protected from inspection in subsequent litigation. The question that has arisen, however, is the status of material provided by the FSA to a party to litigation where that material was prepared by the FSA from material provided by the party to the FSA and therefore already known to the party. Does such material come within the statutory protection in section 348 or has it not been obtained "directly or indirectly from [the FSA]"?
Real Estate Opportunities Limited v Aberdeen Asset Managers
On 9 March 2007, the English Court of Appeal determined precisely that question. In the case of Real Estate Opportunities Limited v (1) Aberdeen Asset Managers Jersey Limited, (2) Aberdeen Asset Managers Limited and (3) UBS Limited ,4 the Court of Appeal considered three categories of documents created in the context of a regulatory investigation by the FSA:
1. tapes and transcripts of interviews with the defendants’ employees;
2. documents received by the defendants from the FSA in connection with the investigation; and
3. correspondence between the FSA and the defendants.
All three categories of documents, therefore, contained information which had been supplied to the FSA by the defendants (or their employees) and then recorded by the FSA. As such, the documents contained information which was already known to the defendants. The FSA then supplied the documents to the defendants.
In subsequent litigation, the defendants disclosed the documents in accordance with the applicable court rules, but refused to allow inspection by the claimant on the ground that they were subject to a right or duty to withhold inspection. The defendants argued that, because the documents had been supplied by the FSA, they had been "obtained" from the FSA for the purposes of section 348 of the FSMA. The claimant challenged the defendants’ refusal to permit inspection. It argued that, because the documents contained information that was already known to the defendants, this information was not "obtained" from the FSA for the purposes of section 348.
It was common ground that:
1. the documents were disclosable in accordance with the applicable court rules; and
2. to the extent that the documents contained information provided to the FSA by third parties (and not previously known to the defendants), inspection was prohibited by section 348 of the FSMA. On any view, therefore, any information obtained from third parties would have to be redacted prior to inspection.
At first instance, the court ordered the defendants to permit the documents to be inspected. The court held that the information in the documents had not been "obtained" from the FSA and was therefore not barred from inspection. Furthermore, the court determined that there was no reason to refuse to allow inspection. The defendants appealed.
The English Court of Appeal crystallised the arguments into the following distinct issues. 5
1. Does a person "obtain" information from the FSA for the purposes of section 348 of the FSMA if the FSA gives that person a document containing information which he already has, even if he is not the source of the information?
2. Does a person "obtain" information from the FSA for the purposes of section 348 of the FSMA if (in the case of a body corporate) knowledge of that information is attributed to it under the general law?
3. Did the first instance court err in its exercise of discretion in ordering the documents to be inspected?
In respect of Issue 1, the Court of Appeal determined that there was no reason to bar inspection where the information was already known to the recipient. If the information was already known to the recipient, it was not "obtained" from the FSA, whether or not the recipient was the "source" of the information in the sense of having provided the information to the FSA or authorised the provider of the information to provide it to the FSA.
In respect of Issue 2, the Court of Appeal determined that the knowledge of a body corporate’s employees and officers (as opposed to just the knowledge of the Board of Directors) would be attributed to the defendants for the purposes of assessing whether it already knew the information supplied to it by the FSA.
In respect of Issue 3, the Court of Appeal upheld the exercise of the lower court’s discretion. The defendants had argued that the exercise of investigating whether the documents contained information which was known to the defendants and (where necessary) redacting passages where they contained information obtained from third parties was overly burdensome and should therefore militate against the exercise of the court’s discretion. In this regard, the Court of Appeal was influenced by the fact that, by the time of the Court of Appeal hearing, two of the defendants had already redacted their documents.
Implications of the Court of Appeal’s decision
The impact of the Court of Appeal’s decision is consistent with previous decisions on similar protections in other primary legislation to that provided by section 348 of the FSMA. It also provides clarity that section 348 must be interpreted in a straight-forward and common-sense way: as the Court of Appeal saw it, so long as the information in question has been obtained independently of the FSA, the bar on inspection does not apply.
Obviously, in the context of litigation, other documents, which would in any event have to be produced for inspection, may well contain the same information as that contained in the documents provided by the FSA. However, the impact of this decision is important: it will provide claimants with documents that already contain the benefit of a regulatory body’s consideration and analysis of relevant facts; further, in a jurisdiction without pre-trial depositions, it will also enable claimants to obtain advance indications of relevant witnesses’ likely testimony. This will extend to documents provided by overseas regulators, such as the SEC or the DOJ, to the FSA and subsequently provided by the FSA to a UK litigant.
At least one potential grey area remains: what if a party obtains information from an independent source after it has already received it from the FSA? As that information is known to the recipient, does it counteract the fact that the information was first "obtained" from the FSA? Clarification of this will have to await another day.
1. Civil Procedure Rules, Rules 31.6 and 31.8.
2. Civil Procedure Rules, Rule 31.3 and 31.19.
3. Unless (i) the information has already been made public; (ii) the information is in the form of a summary or collection of information so framed that it is not possible to ascertain from it information relating to any particular person; or (iii) another exception applies, for example, there are a number of "gateways", which expressly permit the FSA to divulge "confidential information" otherwise protected by section 348 of the FSMA to, for example, other regulatory bodies, such as the SEC and the DOJ, for the purpose of enabling or assisting such bodies to discharge their regulatory functions or in criminal or civil proceedings brought by the FSA.
5. There was an additional issue in respect of one specific document received by the defendants from the FSA.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, Rachel Couter (+44 20 7071 4217, [email protected]) or Philip Rocher (+44 20 7071 4202, [email protected]) in the firm’s London office.
© 2007 Gibson, Dunn & Crutcher LLP
The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.