A recent decision has muddied the waters in relation to when litigation privilege will apply in the context of internal investigations.
Litigation privilege protects documents and communications between clients, lawyers and third parties that are created in contemplation of litigation that is existing or pending. It stems from the principle that litigants should be free to research their case without disclosing the results to their opponents.
In Bilta (UK) Ltd (in liquidation) and others v Royal Bank of Scotland and another [2017] EWHC 3535 (Ch)) the High Court upheld a claim for privilege over transcripts of interviews with employees and former employees carried out by RBS in response to an HMRC investigation.
Bilta concerned a disclosure request from the claimant company (in liquidation) to RBS for transcripts of interviews carried out by its solicitors during an HMRC investigation into alleged VAT fraud.
The ruling appears to move away from the controversial decision in Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB) (08 May 2017), in which materials created during an internal investigation into allegations of misconduct were held to be disclosable to the regulator.
The established test provides that litigation privilege will apply to all confidential communications between lawyers and their clients or third parties created for the sole or dominant purpose of litigation that is existing, pending or reasonably in contemplation.
In ENRC, the court held that an SFO investigation was not adversarial litigation but rather a preliminary step taken before a decision is made on whether or not to prosecute. It also held that notes of internal interviews were disclosable because they were created to establish if there was any truth to the allegations, rather than strictly for use in contemplated litigation.
The decision has been widely criticised for leaving corporates hamstrung from investigating alleged malpractice for fear the materials created as part of the process will be disclosed to regulators and ultimately used against them in any prosecution. The Law Society has commented on the ruling’s ‘perverse effect of discouraging firms from self-reporting for fear of the consequences.’
In Bilta, Sir Geoffrey Vos, Chancellor of the High Court, held that ‘one cannot simply apply conclusions that were reached on one company’s interactions with the Serious Fraud Office in the very different context of another company’s interactions with HMRC.’
It was common ground that litigation was reasonably in prospect as, by the time the interviews took place, HMRC had threatened an assessment against RBS for over-claimed VAT of in the region of £86 million. It was therefore only necessary for the judge to determine whether the materials were created for the ‘sole or dominant purpose of conducting litigation’.
The claimants sought to argue that the documents were created firstly to provide a full and detailed account of the relevant events and so, following the reasoning laid down in ENRC, did not attract litigation privilege.
Sir Geoffrey Vos held that ENRC was not determinative. He held that the sole or dominant purpose in each case is a matter of fact, and in the present case documents were brought into being for the sole or at least the dominant of expected litigation in relation to over-claimed VAT.
The case is likely to provide little comfort to practitioners eagerly awaiting and the Court of Appeal’s decision on ENRC. The appeal will be heard on 3 July 2018. In November 2017, the Law Society announced its intention to intervene.
