Privilege in investigations: a new hope?

The case of Bilta v RBS provides some assistance to businesses seeking to assert privilege over documentation created during the course of their internal investigations. The question will ultimately fall to be determined in SFO v ENRC by the Court of Appeal later in 2018. However, until then, it is hoped that Bilta will provide a platform for asserting privilege in the right circumstances.

The facts

In summary:

• HMRC conducted an investigation into alleged VAT fraud. On 29 March 2012, approximately two years after starting the investigation, HMRC sent RBS a letter confirming its decision to make an assessment in respect of £90 million in over-claimed input VAT. HMRC stated in its letter that it wished to provide RBS with an opportunity to respond before it conducted the assessment.
• RBS conducted an internal investigation into the matter. As part of its investigation, RBS interviewed a number of key employees. The investigation generated documentation including 29 interview transcripts.
• RBS’s solicitors subsequently provided HMRC with a report in respect of the allegations. The report referred to conclusions drawn from the interviews but did not disclose copies of the interview transcripts themselves.
• Bilta sought disclosure of the documents held by RBS relating to the alleged fraud, including the 29 interview transcripts.

The question: were the investigation documents protected by litigation privilege?

Vos LJ reiterated the three requirements which must be met for the document to be subject to litigation privilege and protected from disclosure, as set out in Three Rivers DC:

• Litigation must be in progress or in contemplation.
• The sole or dominant purpose of the communication is the conduct of that litigation.
• The litigation must be adversarial, not investigative or inquisitorial.

Vos LJ also noted that the Three Rivers DC test was considered in SFO v ENRC. In that case, Andrews J held that litigation privilege did not apply to documents that were produced by lawyers and forensic accountants during an internal investigation into allegations of bribery and corruption. First, a criminal investigation by the SFO was not a prosecution, so it did not constitute adversarial litigation for the purposes of privilege. Second, even if a prosecution had been reasonably in contemplation, none of the documents had been created with the dominant purpose of being used in such litigation.

In Bilta v RBS it was agreed between the parties that litigation was in contemplation (the first limb) and that litigation was adversarial in nature (the third limb). The question related to the second limb: was the sole or dominant purpose of the documents in question the conduct of litigation?

Bilta argued that it was not: the documents, and the investigation generally, had multiple purposes. The documents were provided to HMRC pursuant to RBS’s general duties and obligations as a tax payer and under its own Codes of Practice to provide HMRC with a full account of the facts. RBS argued that litigation privilege applied: the dominant purpose of the investigation and the documents was for RBS to defend itself against HMRC whose letter was effectively a pre-action letter before claim.

The decision: yes they were

Vos LJ held that the documents sought by Bilta were created for the sole or dominant purpose of conducting litigation. They were therefore protected by privilege and were not disclosable. In summary, Vos LJ said this:

• HMRC's letter was a "watershed moment". It confirmed that it considered that it had sufficient grounds to make an assessment in respect of almost £90 million in over-claimed VAT. An assessment following the letter was therefore “highly likely”.
• The fact that RBS appointed external solicitors specialising in tax litigation within weeks of receipt of the HMRC letter strongly indicated that RBS anticipated a claim and was gearing up to defend it.
• The letter analysed the relevant law and applied the law to the facts before asking for RBS's position on those facts. It was therefore “similar in nature” to a letter before claim. Moreover, RBS’s report was closely comparable to a typical response to a letter before claim in ordinary commercial litigation.
• Crucially, while the documents may have included other purposes, such as RBS’s compliance with its taxpayer obligations, those other purposes were “subsumed” by the dominant purpose of preparing for litigation which RBS considered almost inevitable.
• The collaborative and cooperative nature of RBS’s interactions with HMRC after receiving HMRC's letter did not mean that RBS was not gearing up for litigation, or therefore preclude the dominant purpose of the documents from being for the conduct of that litigation.

What can we take from the decision?

We make the following observations from Bilta:

• Tension in previous authorities identified: Vos LJ referred to what he saw as “something of a tension” between SFO v ENRC and the Court of Appeal’s decision in Re Highgrade Traders, which followed a more expansive approach to the “dominant purpose” test.
• No general principle from SFO v ENRC: Vos LJ went further. He said that while he would “pay due and proper regard” to Andrews J’s decision in SFO v ENRC, he could not consider it “determinative”. He said that he would not “draw a general legal principle” from Andrew J’s approach to the facts in SFO v ENRC. While he accepted that both SFO v ENRC and Bilta involved “internal investigations by corporates in the face of scrutiny by government authorities, 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." Instead, he preferred a “realistic, indeed commercial, view of the facts”.
• The availability of privilege: The instant response to SFO v ENRC has been that privilege in the conduct of internal investigations has been heavily curtailed. The decision in Bilta demonstrates that, at least in some cases, the protection afforded by litigation privilege is available. Determinations regarding the extent of privilege in internal investigations are fact-sensitive, and it is still possible for internal investigations undertaken in anticipation of proceedings to be protected by litigation privilege.
• Notes of caution: Bilta is a High Court decision only. Furthermore (and in a further twist) in R v Jukes, the Court of Appeal Criminal Division followed the approach in SFO v ENRC and found that the interview notes in question were not protected by privilege.

Practical recommendations

We recommend the following:

• Await Court of Appeal’s decision in SFO v ENRC: This is currently due to be heard in July 2018. It is hoped that the Court of Appeal will provide some more definitive guidelines in what is currently rather an unstable area of law.
• Assume disclosure risk: In the meantime, it is safest to assume that documents created as part of an internal investigation may not be protect by litigation privilege if a litigant or investigating authority seeks their disclosure.
• Take advice: If you have any concerns regarding litigation privilege and how it could be applied then we recommend contacting us.

How can Burges Salmon help?

If you would like help or advice please contact our fraud and white collar crime team.