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Check your Privilege

The High Court has clarified when litigation privilege applies to documents created during an investigation. The decision is particularly relevant against the background of newly-empowered Regulators, emboldened both by political mandate and extended armouries of response.

In Bilta (UK) Limited (In Liquidation) & Ors. (Claimant)(“Bilta”) and Royal Bank of Scotland & Anor. (Defendant) (“RBS”), the Defendant sought to withhold disclosure on the basis that the documents (including employee interview transcripts) were covered by litigation privilege arising from another case between the Defendant and HMRC. Since the Court of Appeal’s narrow definition of “client” in Three Rivers (No. 5), litigation privilege applies when communications are held “for the sole or dominant purpose” of conducting adversarial litigation which is already in progress or contemplation. The RBS documents in question were created following an HMRC letter requesting information to assist in an investigation with respect to a material VAT reclaim. RBS argued that the HMRC communication was a letter before claim, that litigation was practically inevitable, that the interview transcripts were accordingly prepared for the dominant purpose of litigation, and that privilege therefore applied. Bilta contended that the documents were prepared by RBS to elicit information and to persuade the HMRC not to undertake an assessment, litigation was not the dominant purpose, therefore privilege should not apply.

Sir Geoffrey Vos, High Court Chancellor, noted that there was “something of a tension” between two previous cases. In Serious Fraud Office (SFO) and Eurasian Natural Resources Corporation Ltd (ENRC), Mr Justice Andrew concluded that litigation privilege should not apply to investigations whose purpose was to dissuade a third party from commencing litigation. By contrast, the Chancellor referred to Re High Grade Traders, a case in which explicitly dual-purpose documents were held to be privileged. While acknowledging the similarities between Bilta and the ENRC case, Lord Justice Vos chose to emphasise taking “a realistic, indeed commercial, view of the facts”. On this basis, the interview transcripts were held to be “part of the continuum that formed the road to the litigation”. The assessment was supported by RBS’s early appointment of Pinsent Masons’ specialist tax litigation team. RBS’ “ostensibly collaborative and cooperative’ interactions with HMRC did not preclude a dominant litigious purpose, as “the overwhelming probability was that an assessment would follow the HMRC letter”. Bilta’s application was dismissed and leave to appeal was refused.

The ENRC case is scheduled to be heard at the Court of Appeal in July 2018; in the light of Bilta, the Court is more likely to take a similarly pragmatic approach. Subject to the ENRC appeal, the Bilta case is an important clarification of the scope of litigation privilege. In an environment where firms are subject to multiple regulators and senior management face criminal sanction, firms would be well-advised to maximise the application of litigation privilege. Establish a dominant litigation purpose as soon as the possibility of adversarial action presents. Instruct legal advisers early on to oversee the investigation process, thereby marking clear litigious intent. Internal investigation documents should be marked appropriately and all in-scope staff should be informed of the litigation purpose.

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