* Canada, RBS locked in battle over Libor documents
* RBS suggests Canada use UK treaty to get documents
* Legal expert says Britain might not cooperate
By Randall Palmer
OTTAWA, Jan 25 (Reuters) - Britain cannot be relied on to force Royal Bank of Scotland Group Plc to give Canadian authorities documents on alleged interest rate rigging, because the British government is RBS's majority shareholder, Canada's Competition Bureau argued this month.
An affidavit filed by Canadian lawyer on behalf of the Competition Bureau was the latest salvo in a sometimes nasty battle between the bureau and RBS over whether the bureau can compel the British banking group's Canadian subsidiary to hand over potentially damning records held at RBS's head office or elsewhere outside Canada.
The bureau, an arm's length agency of the Canadian government, is investigating whether RBS colluded with other banks and brokers in setting the yen London interbank offered rate (Libor) as part of a global rate-fixing scandal. At stake are corporate reputations and potentially huge fines.
RBS has argued that the Canadian government, acting for the bureau, could ask the British government, under a mutual legal assistance treaty, to compel the bank's head office to produce the documents instead of going to an Ontario court to try to force the Canadian subsidiary to hand them over.
University of Toronto law professor Michael Trebilcock, in an affidavit filed this month for the bureau at the Ontario Superior Court of Justice, suggested, however, that the British might just say no to Canada, the treaty notwithstanding.
"Cooperating with a request by the Canadian government poses significant risks for the UK government in terms of the potential criminal and civil liability of RBS for its role in the alleged international conspiracy to fix Libor rates, given its substantial equity interest in RBS, and hence it faces a fundamental conflict of interest," Trebilcock wrote.
He pointed out that as the result of bailouts during the recent financial crisis, the British government holds an 82 percent equity interest in RBS.
Trebilcock said London had broad discretion under the treaty to refuse any request from Ottawa if it thought it "would seriously impair its sovereignty, national security or other essential public interests or for any reason related to its domestic law."
The Competition Bureau engaged in a public slanging match with RBS in November, issuing a statement that said it was false and misleading for RBS to say in its quarterly earnings report that the bank was "cooperating fully" with the Canadian agency.
RBS countered with a statement that it was "simply not accurate to imply that we do not want to cooperate".
The RBS side has contended that even the "cooperating party" in this case - identified by people familiar with the case as Swiss bank UBS AG - had withheld information due to possible privacy considerations.
But Ann Salvatore of the Competition Bureau, in another affidavit filed this month, said that while the cooperating party did provide only redacted documents when it first came forward with information in May 2011, it provided unedited records last June.
A court date has yet to be set for hearing oral arguments on RBS's challenge to the Competition Bureau's right to its documents.
The case is The Royal Bank of Scotland NV (Canada) Branch v The Commissioner of Competition (31010).