Litigation privilege in internal investigations – a more “realistic” approach

A number of recent cases have adopted a narrow approach to the question of whether legal professional privilege can be claimed over documents created in the course of internal investigations (see in particular SFO v ENRC [2017] 1 WLR 4205, The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) and PAG v RBS (No 3) [2015] EWHC 3341 (Ch)). 

Against that trend, the recent judgment of Bilta & Ors v RBS & Anor [2017] EWHC 3535 (Ch) is a notable example of a more “realistic” and “commercial” approach to litigation privilege in the context of internal investigation materials.

SFO v ENRC – A restrictive approach

Communications between parties or their solicitors and third parties will only attract litigation privilege if, at the time of the communication in question, the following conditions are satisfied:

1. Litigation is in progress or reasonably in contemplation.
2. The communications are made with the sole or dominant purpose of conducting that anticipated litigation.
3. The litigation is adversarial, not investigative or inquisitorial.

Those conditions needed to be established by ENRC when it sought to resist disclosure of various documents that had been created in the course of an internal investigation into whistleblower allegations of bribery and financial wrongdoing.  ENRC claimed that those documents, including notes of interviews conducted by ENRC’s solicitors, were subject to litigation privilege (as well as legal advice privilege).  ENRC’s claim for privilege was largely unsuccessful.  Ordering disclosure, Andrews J found that litigation privilege did not apply to any of the documents as:

• Litigation was not in progress at the time of their creation, as a criminal investigation by the SFO does not equate to adversarial litigation for privilege purposes. 
   
• Neither was litigation reasonably in contemplation by reason of there being a criminal investigation by the SFO.  Andrews J emphasised two factors in support of that finding: (a) that “prosecution only becomes a real prospect once it is discovered that there is some truth in the accusations, or at the very least that there is some material to support the allegations of corrupt practices”; and (b) that while civil proceedings can be commenced without any foundation, criminal proceedings cannot be started unless the prosecutor is satisfied that there is a sufficient evidential basis for prosecution and the public interest test is also met.
   
• None of the documents had been created with the sole or dominant purpose of conducting litigation.  Contemporaneous documents showed that the original purpose of the internal investigation was to establish if there was any truth to the whistleblower allegations and to prepare for an investigation by any regulator or investigatory body.  Furthermore, Andrews J held that litigation privilege does not extend to documents that are specifically created to be shown to a litigation adversary or to avoid litigation by persuading a third party not to commence proceedings in the first place.

Bilta v RBS – A “realistic” and “commercial” approach

Similar facts to ENRC underpin Bilta.

In Bilta, the claimants in a civil dispute sought disclosure of documents created in the course of an internal investigation by RBS’s solicitors in response to a letter from HMRC alleging that it had grounds to deny RBS’ claim for VAT input tax as RBS knew or should have known that it was participating in transactions connected with fraud.  The documents included transcripts of interviews conducted by RBS’ solicitors.

RBS resisted disclosure as it claimed that the documents were subject to litigation privilege.  Unlike in ENRC, the parties were agreed that conditions (a) and (c) above were in existence at the time the documents were created, so the case centred on condition (b): whether the documents were made with the sole or dominant purpose of conducting anticipated litigation.

Holding that litigation privilege did apply to the documents, Vos LJ placed emphasis on the following factors:

• That the exercise of determining the sole or dominant purpose in each case is a determination of fact.  Therefore, although ENRC and Bilta involved similar facts (internal investigations in the face of potential action by public authorities), one cannot simply apply conclusions that were reached on one case in the very different context of another case.
   
• It does not matter whether litigation is the sole or merely the dominant purpose, as a subsidiary purpose is subsumed into the dominant purpose.  Adopting a “realistic” and “commercial” view, Vos LJ found that RBS was not spending large sums on legal fees in the hope that HMRC would be dissuaded from issuing an assessment.  The “overwhelming probability” was that an assessment would follow the HMRC letter, RBS knew as much and RBS was gearing up to defend it.  The interviews conducted by RBS’ solicitors were in preparation for that litigation.  Likewise, the report issued by RBS’ solicitors, based in part on those interviews, was comparable to a response to a letter before claim.  Therefore, if dissuading HMRC from issuing an assessment was a purpose, it was a subsidiary purpose.
   
• RBS’ collaborative and cooperative interactions with HMRC did not preclude the investigation being conducted for the dominant purpose of litigation.  Those actions were only consistent with RBS’ overarching purpose being preparation for litigation.    

The future

With public authorities and civil litigants buoyed by recent cases and taking a more aggressive approach to challenging assertions of privilege, similar issues are likely to crop up in future cases in relation to materials created during internal investigations.  As each case will turn on its own facts, and as ENRC and Bilta are both first instance decisions, it would not be surprising if we see another case which appears analogous on its facts decided differently.  That is particularly the case in the context of different investigating authorities or regulators, who more often than not have differing thresholds and methods of deciding whether or not to pursue an adversarial process.  Accordingly, the issue of privilege will continue to be an important one for clients and practitioners, requiring careful attention and decision making throughout an internal investigation.    

Further information

Phil is an Associate in the Criminal Litigation department.  He advises clients on general and white collar crime cases as well as internal and regulatory investigations.