Litigation Privilege Revisited

Bilta (UK) Limited (In Liquidation) & Ors v Royal Bank of Scotland Plc & Anor [2017] EWHC 3535 (CH)

In a dispute between Bilta (UK) Limited (in Liquidation) & Ors. (Claimant) (Bilta) and Royal Bank of Scotland plc & Anor. (Defendants) (RBS), Sir Geoffrey Vos, Chancellor of the High Court (the Chancellor), was asked to rule upon whether documents created in the course of an investigation, including employee interview transcripts, attracted litigation privilege.

The case concerned an alleged carbon credit trading fraud, including a failure to account to HMRC for VAT. Bilta sought documentary disclosure from RBS in support of its case; however, RBS resisted this application on the basis that the requested documents were subject to litigation privilege.

Relevant factual background

On 29 March 2012, HMRC wrote to RBS indicating that there may be grounds to deny a VAT reclaim in respect of the relevant trades worth around £86 million. RBS's counsel submitted that this letter represented a watershed or step change from an investigation by HRMC to a tax dispute, and was analogous to a letter before claim. Following receipt of that letter, RBS's litigation counsel became involved and instructed a firm of specialist tax litigators, who went on to carry out an investigation, including conducting employee interviews. These interviews resulted in the creation of interview transcripts. Subsequently, RBS's external counsel produced a report for RBS, which was later provided to HMRC on the express basis that RBS did not waive any legal professional privilege in doing so. The report argued that HMRC's assessment was timed-barred and that RBS did not know nor should have known that the transactions were fraudulent.

The dispute

It was accepted by Bilta that litigation was in contemplation from 29 March 2012 and, moreover, that the litigation was adversarial, rather than investigative or inquisitorial. The key issue was whether the documents prepared as part of the investigation conducted by RBS's external counsel (including the report and interview transcripts) were made for the sole or dominant purpose of conducting litigation and, therefore, attracted litigation privilege.

RBS argued that, following receipt of the 29 March 2012 letter from HMRC and having instructed specialist litigation lawyers, the sole or dominant purpose of producing the documents, including the interview transcripts, was to defend HMRC's claim and the intention behind the creation of the documents and conducting of the interviews was to resist HMRC's almost inevitable assessment when litigation ultimately began. In contrast, Bilta's counsel argued that it was clear (based on the evidence) that the purpose of the investigation was to provide a full and detailed account of the relevant facts, and that RBS had not established whether any litigation purpose was in fact the dominant one, even if the documents (including interview transcripts) had multiple purposes when produced.

Relevant case law

The Chancellor recited a passage from Bankim Thanki's Law of Privilege concerning dual-purpose documents which indicated that, whilst it may be necessary to identify the dominant purpose where a communication has been made for two or more purposes, the Court may sometimes conclude that these two apparent purposes are inseparable parts of a single purpose, whereupon it is necessary only to examine that overarching purpose. The Chancellor then went on to refer to the Court of Appeal's decision in Re High Grade Traders [1984] BCLC 151. This was a fire-related insurance case where the insurer had a dual-purpose in obtaining advice from their solicitors about how to proceed and also of ascertaining the cause of the fire. In that case, the Court of Appeal rejected the suggestion made at first instance that litigation privilege applied only if the documents were brought into existence for the dominant purpose of actually being used in evidence in anticipated proceedings and, also, that the purpose of taking advice on whether or not to litigate was a separate purpose which did not qualify for litigation privilege. The Court of Appeal held that to confine litigation privilege in such a way was too narrow and both purposes were ones to which litigation privilege could attach.

Bilta relied heavily upon the recent decision of Andrews J. in Serious Fraud Office v ENRC [2017] 1 WLR 4205, in which Andrews J. had approved the suggestion that litigation privilege would not apply to a document which had come into existence for the purposes of being shown to the other side, albeit to try to settle litigation. In doing so, Andrews J. rejected ENRC's submission that documents which had been created in order to obtain legal advice about how best to avoid contemplated litigation attracted litigation privilege; obtaining evidence to conduct a defence, to decide what evidence to call if the case proceeded, and/or what tactics to employ was quite different from evidence which might enable the party or its legal advisers to persuade the other party not to commence litigation in the first place. Likewise, Andrews J. held that documents created with the specific purpose of showing them to a potential adversary in litigation, whether to persuade them to settle or not to bring proceedings in the first place, did not attract litigation privilege.

The Court's decision

The Chancellor indicated there was "something of a tension" between the decision of Andrews J. in ENRC and that of the Court of Appeal in High Grade, the latter not appearing to have directly cited Andrews J. Determining what was the sole or dominant purpose was a determination of fact and it was wrong simply to "apply conclusions reached on [ENRC's interactions with the SFO] in the very different context of another company's interactions with HMRC". The Chancellor accepted that the HMRC letter amounted to a watershed moment and that, thereafter, it was highly likely that an assessment would follow. He also held that it was not very likely that RBS would be able to persuade HMRC to drop its claim altogether. Accordingly, the commercial reality here was the overwhelming probability that an assessment from HMRC would follow, and RBS knew as much. RBS had, therefore, taken such steps to protect its position, which were only consistent with its overarching purpose of preparation for the litigation. The difficult issue was to determine whether litigation was the sole or dominant purpose of the activities by RBS following the letter from HMRC. While RBS had argued that litigation was the sole purpose of the investigation, the Chancellor indicated that it did not much matter whether it was the sole or merely the dominant purpose. Although Andrews J. had considered that attempts to settle a claim prevented the litigation purpose from being dominant, one could not properly draw a legal principle from this approach to those facts. While the High Grade situation was a different one, the case made clear that one must take a realistic, indeed a commercial, view of the facts. RBS was not spending large sums on legal fees in the hope that HMRC would be dissuaded; this was obviously a "very subsidiary purpose" if that were the purpose of the investigation at all. Fending off HMRC's assessment was just part of the continuum which formed the road to the litigation, which RBS considered almost inevitable and with which the Chancellor agreed.

Commentary

This decision is a helpful one in the context of internal investigations, especially for firms in the regulated sector who might face scrutiny from other regulators, such as the FCA, the PRA, or the SFO. The Chancellor rejected the bright dividing lines expressed by Andrews J. in ENRC. In ENRC, Andrews J. appears to have concluded that, as a matter of principle, documents brought into existence in order to try and settle litigation – and in particular for the purposes being shown to the other side – could never attract litigation privilege. Litigation privilege could not extend to documents created to obtain legal advice on how best to avoid contemplated litigation, including seeking to settle a dispute before proceedings are issued. Andrews J. found that evidence to enable the conduct of a defence, to decide what evidence to call, and/or what tactics to employ were entirely different from evidence which is hoped to enable the party to persuade the other side not to commence proceedings in the first place. However, the Chancellor rejected this proposition and followed the Court of Appeal's approach in High Grade that it is necessary to take a realistic and commercial view of the facts when determining whether or not litigation privilege applies.