Parallel Proceedings

Many decisions need to be taken to address practical challenges arising from parallel proceedings and often there is no perfect solution.

What potential solutions are available?

A company subject to parallel proceedings must anticipate the broader strategic impact that decisions made in the context of each individual action may have.

Three areas where decision making can create particular challenges for a company defending multiple proceedings are: settling or securing the early conclusion of proceedings; claiming and waiving privilege; and managing reporting obligations and publicity. For example:

  • an agreement to settle civil proceedings where a criminal prosecution is anticipated or ongoing can be found to be illegal, unenforceable for public policy reasons or procured using improper negotiation tactics
  • decisions to waive privilege to strengthen a defendant company’s commercial position in one sphere (for example, when negotiating a Deferred Prosecution Agreement in respect of alleged criminal conduct) can undermine the company’s ability to assert that privilege in other related actions, and
  • notifying others of misconduct can require the balancing of complex and potentially competing interests, such as the desire to make disclosures to markets and/or regulatory and enforcement authorities whilst limiting negative publicity.
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Negotiating settlements
  • Civil proceedings

    A defendant to civil proceedings who is also facing actual or potential criminal action may seek to confidentially settle those proceedings at an early stage for several reasons, including:

    • "keeping a low profile"
    • reducing the burden of defending multiple actions and freeing-up resources for the criminal case, and
    • avoiding the obligation to serve a Defence or give disclosure before the full extent of the criminal case is known.

    Whilst these factors may be compelling, there are a number of pitfalls in settling claims that overlap with allegations of criminality and parties are advised to proceed with caution.

    An attempt by a claimant to improve its civil settlement terms by leveraging its knowledge of a defendant’s criminal impropriety could be regarded as in excess of what is “permissible in settlement of hard fought commercial litigation” and therefore “unambiguously improper” (Boreh v Republic of Djibouti). Statements made to that effect cannot be protected by without prejudice privilege and may therefore be deployed in evidence against their maker, including in an action for abuse of process. They may even be regarded as blackmail (Ferster v Ferster). For further commentary, see our article.

    Further, a settlement agreement may be deemed against public policy or illegal if its object is to stifle a prosecution. A Court may refuse to uphold the confidentiality of a settlement entered into on the basis of an agreement by the Claimant not to disclose suspected criminal conduct to the authorities (Att-Gen v Guardian Newspapers Ltd (No.2)). In addition, if the claimant receives a payment under the agreement that exceeds reasonable compensation for a loss suffered, they could be found guilty of concealing an offence pursuant to section 5(1) of the Criminal Law Act 1967.

    Criminal proceedings

    It is not possible to "settle" criminal proceedings, though a corporate defendant can procure their early conclusion by entering into a DPA or pleading guilty. There are benefits available to defendants who choose either of those routes, including the prospect of a substantially reduced penalty and reputational and market stability.

    However, concluding criminal proceedings in this way could have a significant negative impact on the prospects of any related civil or regulatory proceedings. As explained in Addressing related decisions: Criminal convictions / resolutions, admissions made in the Statement of Facts published with a DPA can have a significant impact and a conviction (including following a guilty plea) may give rise to an evidential presumption of guilt, which may or may not be determinative of the issues in civil or regulatory proceedings.

    In addition, though the early termination of proceedings may mean that documents ordinarily prepared or disclosed in the course of criminal proceedings (such as defence case statements, witness statements and used material) will not be produced, there will often be a significant repository of evidence gathered by the prosecutor during its investigation which a party to related proceedings may seek to obtain. See, for example, the case of Omers Administration Corporation and Others v Tesco PLC in which the Court ordered disclosure in civil proceedings of criminal investigation material which had been provided to Tesco by the SFO during the course of DPA negotiations.

    Regulatory proceedings

    In contrast to civil and criminal cases, a regulatory settlement is unlikely to have a significant impact on any related proceedings. A decision to reach a settlement with a regulator will therefore generally be made on the basis of largely independent factors.

    Though a defendant will be expected to provide a response to the regulator and disclose documents and other information, in most cases this will be a confidential process and will not result in significant amounts of information entering the public domain, triggering the interest of other parties. Therefore, in contrast to civil proceedings, this is unlikely to be a key driver to settle (note though that such information could find its way into the hands of interested criminal authorities via one of the established routes for sharing information explained in Managing multiple stakeholders: Enforcement authorities.

    If a settlement is reached, in most cases a decision will be published by the regulator setting out the scope of any wrongdoing accepted by the defendant. As explained in Addressing related decisions: Regulatory decisions this may alert prospective civil claimants to a breach and could be relied on as hearsay evidence in subsequent civil proceedings. However, in many cases the issues of interest to the regulator will be more narrowly confined than those pursued by a civil claimant, which will limit its impact. In any event, the regulatory decision will not have a determinative effect on a related civil action and it is unlikely to have any impact on a parallel criminal case.

Claims to privilege
  • Litigation privilege may be claimed over communications between lawyers, clients and third parties made for the dominant purpose of litigation which is reasonably in prospect. That privilege can then be relied on to withhold disclosure of material in any subsequent proceedings - it is not limited to the action which "triggered" the claim. In parallel proceedings, litigation privilege will protect from disclosure communications and documents created from the point at which the first set of "adversarial" proceedings is contemplated by the defendant company until the conclusion of all actions. As a general rule, as soon as a civil claim or criminal investigation is anticipated, that threshold will be met. The position is less clear in relation to regulatory investigations, which may not be considered "adversarial" until a particular stage is reached.

    A defendant company may decide that it is in its interests to waive privilege and disclose documents which strengthen its case in one set of proceedings, or where it has been invited to do so by an enforcement authority, in particular the SFO, in return for "co-operation credit" in criminal proceedings. For more information on the consequences of a decision to co-operate with the SFO please read Balancing strategic interests: Impact of co-operation.

    For a discussion of the relationship between co-operation and privilege waivers, see our article.

    Any such waiver of privilege is likely to be made on a limited basis. Provided the terms of the waiver are clearly expressed and can be evidenced (if required) this ought not to result in a complete waiver of privilege, such that the company would be required to disclose the documents in all other related proceedings. However, in giving any sort of waiver a company loses control over documents, which increases the likelihood that confidentiality (and consequently, any claim to privilege) will be lost.

    In particular, it should be noted that the SFO may be required pursuant to its prosecutorial obligations to disclose material provided to it on a limited waiver basis to any individuals charged with offences relating to the conduct under investigation (R (on the application of AL) v SFO). If material over which privilege has been waived is subsequently referred to in open Court proceedings it could lose confidentiality and disclosure may at that point be sought by parties to related proceedings.

Reporting and publicity
  • Companies that discover misconduct within their business will need to think carefully about what to say about the incident, to whom and when. Such considerations can involve balancing complex and potentially competing interests, such as a desire to make disclosures to markets and/or regulatory and enforcement authorities while limiting negative publicity.

    Mandatory disclosure obligations may be triggered at a very early stage. For instance, businesses in the regulated sector need to file a Suspicious Activity Report with the National Crime Agency “as soon as is practicable” after having reasonable grounds to suspect that a money laundering offence has been committed; and FCA- and PRA-authorised firms must notify the FCA “immediately” upon becoming aware that an employee may have committed a significant fraud against the firm or a customer.

    Similarly, requirements for listed companies to publicly disclose price sensitive information - which includes information about a company’s suspected involvement in serious criminal activity and any investigation by an enforcement authority - may also need to be complied with from the outset. In the case of LSE-listed companies, such disclosure must be made to the LSE, the FCA, the company’s shareholders and the public via a regulatory information service and/or the company’s website.

    If this information is disclosed late there is a risk of a false market in the company’s shares being created, potentially exposing it to further liability. It is also possible that, if notified first, the SFO will announce an investigation into the matter before the company has informed the market. Material developments in any subsequent investigations and/or proceedings will also need to be publicly reported.

    Publicity surrounding an incident or event is likely to be prolonged and/or increased where various proceedings are examining the relevant circumstances. The involvement of multiple interested parties can also make it more difficult for companies to control the dissemination of potentially damaging information.

    From the point at which wrongdoing is uncovered or suspected, it is essential for companies to develop an effective and coherent strategy for managing the sharing of information with all relevant stakeholders, including the public. This strategy will need to be continually revised as circumstances change and ongoing investigations and/or proceedings develop. It would be usual in most serious cases for a company to appoint PR consultants to assist.

Richard Sims, Partner

Many decisions that would be difficult enough in the context of one set of proceedings can become even harder when trying to foresee the impact across multiple proceedings. When reporting to authorities, for example, a company needs to consider what channels of communication may exist between different authorities, how information may be shared and whether privileged material provided to a UK authority under a limited waiver might then be demanded by authorities in other jurisdictions where limited waiver is not recognised.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.