High Court decision provides practical lessons for companies conducting investigations.
The English High Court has reconfirmed that litigation privilege can apply to information gathering in internal investigations. Specifically, lawyers must have engaged in the information gathering for the dominant purpose of conducting litigation, and this can include prospective claims by tax authorities.
Case Background and previous decisions
Bilta UK Ltd. is an English company that was compulsorily wound up in November 2009 pursuant to a petition presented by HM Revenue and Customs (HMRC). In Bilta (UK) Ltd v Royal Bank Of Scotland Plc & Anor  EWHC 3535 (Ch), the liquidators of Bilta sought disclosure and inspection of documents, including interview transcripts that the Royal Bank of Scotland (RBS) had created during an HMRC tax investigation.
Three Rivers District Council v Governor & Company of the Bank of England (No 6)  1 AC 610 sets out the test for litigation privilege. The test includes the following requirements:
- Litigation must be in progress or in contemplation.
- The document must have been made for the sole or dominant purpose of conducting that litigation.
- The litigation must be adversarial, not investigative or inquisitorial.
In Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (ENRC), Andrews J held that litigation privilege did not apply to documents prepared for the dominant purpose of (a) a criminal investigation (as opposed to a prosecution), or (b) avoiding a prosecution (as opposed to preparing a defence brief). Fact finding or evidence gathering, including a lawyer’s notes and other working papers, do not attract legal advice privilege, unless they betray the tenor of legal advice. (Further details on the decision are available in this Latham.London blog post and this Latham & Watkins Client Alert.)
In Bilta v RBS, the claimant accepted that the documents were created at a time when litigation was in contemplation, and that that litigation was adversarial. The case therefore focused on whether the documents were created for the sole or dominant purpose of conducting that litigation.
Sir Geoffrey Vos, Chancellor of the High Court, found in his judgment that several critical factors distinguished Bilta v RBS from SFO v ENRC, including:
- In 2012, after two years of correspondence, HMRC wrote to RBS, in a “watershed” moment, stating that HMRC had sufficient grounds to deny the tax relief in dispute. Sir Geoffrey Vos recognised that even though this exchange was an interaction with an authority, the communication did not equate to the interactions with the Senior Fraud Office in ENRC. Rather, this letter was analogous to a “letter before action” in civil litigation.
- In response to the letter, RBS instructed external specialist tax litigation counsel — suggesting that RBS had anticipated the necessity to defend a claim reasonably in contemplation.
- The subsequent interactions in which RBS attempted to convince HMRC not to issue an adverse tax assessment may have been “ostensibly collaborative and cooperative” in nature; however, this did not preclude the investigation being conducted for the dominant purpose of litigation.
- The court considered Re Highgrade Traders  BCLC 151 (which was not cited in ENRC). This case held that a document could be prepared in contemplation of litigation even in circumstances where the document was to enable a client to receive advice on whether or not to litigate.
Practical Steps for Companies
Bilta v. RBS provides several practical lessons for UK companies conducting an internal investigation:
- Consider the specific facts of the case when deciding whether, and how, to record information gathering. Sir Geoffrey Vos declined to “draw a general legal principle” from ENRC, and emphasised that the purpose of a document must always be established in the context of the specific facts of the case, even if that case involves an investigation by a competent authority.
- Consider the purpose of creating documents that might not be covered by legal advice privilege (in particular, interview notes and transcripts). Companies should specifically consider whether or not they are creating the documents for the dominant purpose of litigation, and then they should record the decision-making process in writing. If there is a risk privilege might not apply, companies should weigh the advantages and disadvantages of creating potentially disclosable documents. Engaging litigation counsel can be a significant factor in determining privilege.
- Consider at an early stage whether the strategy for withholding documents will prove beneficial. In his judgment, Sir Geoffrey Vos speculated on RBS’ reluctance to disclose documents, saying, “I must confess that I have wondered in the course of the argument in this case why RBS sought to assert privilege over at least the interviews of the witnesses who will themselves be called to give evidence at the trial. They will obviously cast light on what they said when initially asked about the events that underlie this litigation. […] disclosing them would dispel a great deal of suspicion …”
- Follow ongoing developments in the Court of Appeal to the extent that there is a tension between Bilta and ENRC. Because both cases are first-instance decisions, the Court of Appeal’s favoured approach is not yet known. Whether or not Bilta will appeal remains uncertain; however, the Court of Appeal is due to hear ENRC’s appeal in July 2018.