Tuesday, 20th February 2018
Speedread
Companies will often need to undertake internal investigations of accidents or regulatory or other issues. Some recent English decisions demonstrate the need to be aware that materials generated in such internal investigations will not necessarily be protected by legal privilege and can sometimes be used against the company in litigation.
In May 2017, we noted the English High Court decision in SFO v ENRC1, which significantly limited the circumstances in which a company can claim litigation privilege over material created during an internal investigation. While an appeal from that decision is pending, another recent decision of the English High Court, in Bilta v RBS2, supports a broader view of the extent to which a company can claim such privilege over the work product from an internal investigation.
The privilege determination will always be fact specific, but the recent decision in Bilta will be welcomed by in-house counsel and lawyers in private practice on the basis that it is more consistent with the way such issues are normally dealt with by companies in practice. The decision supports the proposition that "collaborative and cooperative" interactions by a company with an authority investigating it, will not necessarily preclude a company's internal investigation from being conducted for the "dominant purpose" of litigation (the second limb of the English test for litigation privilege in the Three Rivers case3).
Facts
The claimant, Bilta (which is engaged in civil proceedings against RBS), sought the disclosure of documents relating to an internal investigation carried out by RBS, in response to an investigation by HM Revenue and Customs (HMRC) into carbon trading VAT fraud. Bilta sought disclosure of transcripts of interviews with employees and ex-employees of RBS.
RBS engaged with HMRC on a co-operative and collaborative basis from the outset of the HMRC investigation which commenced in 2009. Significantly, in March 2012, HMRC wrote to RBS indicating its view that RBS should have known about a failure to account for VAT, such that there were "sufficient grounds" to deny RBS £89 million in input tax. HMRC subsequently issued an 'assessment' relating to the alleged over claiming of VAT by RBS. At that point, RBS engaged external tax litigation lawyers and commenced an internal investigation, whilst continuing to engage – still on a cooperative basis – with HMRC. The investigation report, prepared by RBS solicitors, Pinsent Masons, was ultimately submitted to HMRC, although RBS asserted privilege over related work product (mainly interview transcripts).
In seeking discovery, the claimants relied on SFO v ENRC to argue that the material was not protected from disclosure by litigation privilege. They conceded that the first and third limbs of the test for litigation privilege in Three Rivers were satisfied (i.e. the documents were created when litigation was in contemplation, and such litigation would be adversarial). However, they contended that RBS had not established the second limb, that the documents were for the "sole and dominant purpose" of conducting that litigation. Rather, Bilta argued that the documents were to assist RBS in informing itself of the position given the lapse in time; to supply a full and detailed account to HMRC; and to persuade HMRC not to issue an assessment.
Key points from High Court's decision on Litigation Privilege
The Court upheld the RBS claim to litigation privilege, ruling that:-
- It was necessary to consider the specific facts, and to take "a realistic, indeed commercial" view of those facts – the conclusions reached in SFO v ENRC on one company's interactions with the Serious Fraud Office could not automatically be applied in the very different context of another company's interaction with the tax authorities.
- Cooperation by RBS with HMRC did not preclude the company's internal investigation from being conducted for the dominant purpose of litigation. The fact that RBS was open and collaborative did not mean that it was not preparing for litigation. The Court noted that it was highly likely that HMRC would undertake a tax assessment of RBS – given the sums involved it was unlikely to be persuaded to "drop altogether a claim for many millions of pounds on the basis of a solicitor's report".
- The RBS appointment of external tax litigation solicitors was considered significant, demonstrating that RBS was "gearing up to defend" the anticipated tax assessment.
Takeaways
- English law on litigation privilege remains in flux pending the Court of Appeal's decision in the SFO v ENRC appeal, which is scheduled for hearing in July 2018. However, the Bilta v RBS decision is a welcome development, providing a broader basis for contending that litigation privilege applies in the context of internal investigations, than that espoused in SFO v ENRC. However, it only deals with the second (of the three) limbs of the English test for establishing litigation privilege as outlined in Three Rivers.
- Notably, the Court of Appeal delivered a decision last month endorsing another aspect of the SFO v ENRC decision. In R v Jukes4, it held that a statement provided by the appellant (who was appealing a health and safety conviction) to his company's solicitors (in the context of the company's internal investigation) was not privileged. This was on the basis that the particular statement was not prepared while litigation was either in progress or in contemplation. When the statement was provided, the UK Health & Safety Executive's investigation was at an early stage, and no decision had been taken to prosecute him. Drawing a distinction between civil and criminal proceedings, the Court of Appeal endorsed the position adopted in SFO v ENRC which established that "the reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of a prosecution" (emphasis added).
- Importantly also, the Bilta v RBS decision only addresses litigation privilege, and not legal advice privilege. Attempts to assert legal advice privilege over interview notes in SFO v ENRC were rejected as the individuals interviewed were not authorised to seek or receive legal advice on behalf of ENRC, and therefore were not 'clients' of the lawyers providing the advice. Nor was it accepted that the notes comprised lawyers' working papers as they did not convey the tenor of legal advice being given.
- Of course, English decisions are not binding before the Irish courts (although they are often cited). While the Irish courts have still not considered these issues in any detail, recent decisions (including last month's High Court decision in Director of Corporate Enforcement v Leslie Buckley5) demonstrate a willingness on the part of the Irish courts to safeguard privilege.
- That said, the ability to assert a claim to litigation privilege (whether in an internal investigation, or indeed in any contentious matter) will always be fact specific. Advance planning and regular review is essential, and caution should always be exercised when creating documents addressing sensitive issues.
Key Tips for Preserving Privilege
- Have a clear paper trail showing when litigation is first contemplated and why, but also consider whether any interviews should be carried out before litigation is contemplated, and, if so, whether and how they should be documented.
- Define the 'client', record it in writing, and keep that issue under review. Ensure that all persons with whom legal advice and privileged information is likely to be shared are covered. Consider the position of group entities.
- Arrange for independent legal advice as and when necessary, particularly if criminal prosecution is likely.
- Limit communications to the client group, and to what is necessary in the circumstances. Avoid generating unnecessary documentation which may not attract privilege.
- Where appropriate, mark documents/emails ‘Legally Privileged and Confidential’ while understanding that the courts will decide on the substance of the document, rather than the form or label placed upon it.
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1 [2017] EWHC 1017 (QB)
2 [2018] WLR(D) 33
3 [2005] 1 AC 610
4 [2018] EWCA Crim 176
5 [2018] EHC 51
