FCA Proceedings and Privilege
Reasoning in the recent FCA v Carillion PLC (In Liquidation) decision may be relevant to the question of when litigation privilege arises during a regulatory investigation.
In FCA v Carillion PLC (In Liquidation)  EWHC 2146 (Ch) the Insolvency and Companies Court determined that the issuance of a Warning Notice by the FCA would constitute "proceedings" within the meaning of section 130 Insolvency Act 1986. Some of the reasoning in the judgment may be relevant to the question of when, during the course of a regulatory investigation, are proceedings in contemplation for the purpose of litigation privilege.
Section 130(2) Insolvency Act 1986 provides that as a consequence of a winding up order “no action or proceeding” shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.
In Carillion, Judge Clive Jones, considered the question of whether, pursuant to section 130(2), the Court’s leave would be required for the FCA to issue a Warning Notice against Carillion PLC proposing disciplinary action for breach of the Listing Rules and/or MAR arising from statements made to the market by Carillion before its collapse. In reaching his decision he considered whether the RDC process, including the issuance of a Warning Notice, would constitute proceedings, making the following findings regarding the nature of the process.
82…the nature of the decision and the process applied by the Upper Tribunal, as by the FCA/RDC, “cries out” as a “proceeding”.
83. In that regard it is of note that whether before the RDC or the Upper Tribunal, a decision is made upon individual responsibility and liability. That is its nature. There is a process for that decision which identifies the claim of breach, presents the facts and matters and the supporting and opposing evidence relied upon, listens to representations and reaches a decision. It is a process which starts with the formality of a Warning Notice and requires a Notice of Discontinuance of “proceedings” should the FCA decide not to issue a Decision Notice or the Upper Tribunal conclude that a Final Notice will not be issued. All these are features of “proceedings”.
Section 413 FSMA protects from disclosure to the FCA communications made in contemplation of and for the purpose of legal proceedings. The question of whether legal proceedings are in contemplation in an Enforcement investigation is a question of fact which may vary from case to case, but in the past the FCA has taken the position that its investigation process does not become sufficiently adversarial to constitute "legal proceedings" for these purposes until after the RDC has issued a Decision Notice.
Whilst the Court in Carillion was not concerned with the question of whether the RDC process was adversarial or the question of privilege, the judge's reasoning, whilst not determinative of the issue, lends weight to the argument that the RDC process constitutes legal proceedings and therefore that communications made during an investigation in contemplation of the RDC process (for example interviewing witnesses) might benefit from litigation privilege.
Permission to appeal has been granted. The High Court judge's decision in due course may contain further commentary relevant to this issue.