By Stuart Alford QC, Daniel Smith and Kem Ihenacho

Legal professional privilege allows clients to share information with lawyers, knowing it need not be revealed in court. Privilege extends to legal advice generally, and to documents prepared in contemplation of litigation. Privilege has important implications for private equity beyond litigation, and can affect how firms and portfolio companies conduct internal investigations worldwide, and how information is shared during and after deals. However, challenges to privilege are increasing; from civil litigants, regulators and prosecutors.

Findings of Internal Investigations May Not Be Protected

Data released by the Financial Conduct Authority (FCA) points to a significant increase in investigations of regulated firms. This comes as the FCA broadens the UK’s Senior Managers and Certification Regime to financial sponsors, as part of a programme to assign responsibility and accountability to senior executives. External investigations typically trigger an internal investigation, as firms want to understand and respond to potential wrongdoing or failings. However, buyout firms should note that two recent cases make clear that investigation materials, in particular interview notes and transcripts, might not be privileged and could be disclosable in civil, regulatory and criminal proceedings.

A decision during the RBS Rights Issue Litigation concerned notes of employee interviews, created by RBS’ external lawyers during an investigation in response to a US Securities and Exchange Commission request. Although privileged under US law, the English court held that in English proceedings English law applied. The court decided that the notes did not attract legal advice privilege because the employees were not the lawyer’s “client”: privilege only applies to communications with those authorised to seek or receive legal advice. Additionally, in a ruling against mining company ENRC, the court found that documents prepared by external lawyers in response to an investigation did not attract litigation privilege, because an investigation — even by the Serious Fraud Office — was not sufficiently “adversarial”.

Any PE firm or PE-backed company under investigation should understand the limits of privilege and plan affairs accordingly.

Managing Information Exchange: During the Deal and After Acquisition

These cases have implications beyond investigations. First, deal teams should be aware that documents created during due diligence might not be privileged; even if created by a lawyer or for the purposes of receiving advice. Documents containing legal advice will be privileged, but notes of interviews or information-gathering exercises from target companies might be at risk, because they are not considered communications with “the client”. Second, post-acquisition, sponsor employees holding positions within portfolio companies must exercise caution when dealing with any information privileged to the company. Sharing privileged information with PE firm colleagues risks waiving privilege, the risk increasing with wider dissemination. In ordinary parent/ subsidiary relationships “common interest privilege” can sometimes preserve privilege, but the principle is untested in the context of PE investments.

In our view, those acting in multiple capacities should share privileged documents only if necessary, and only if non-waiver agreements are in place, making it clear that the information is confidential and privileged.


While privilege remains a fundamental legal right, there are plenty of potential pitfalls for PE and careful navigation of this complex area is necessary.