UK: Privilege In Internal Investigations

Our Compliance & Investigations team identified six aspects of any investigation that you will need to consider carefully in light of the recent Bilta judgment, summarised in our  infographic.

We wrote a post earlier this month on the decision in Bilta (UK) Ltd v Royal Bank Of Scotland Plc & Anor in which the Chancellor of the High Court confirmed that, given the right set of facts, it remains open to parties to claim litigation privilege over documents created during an internal investigation conducted against the backdrop of a criminal investigation. This represented a different approach to that taken in SFO v ENRC, a decision which casts doubt on the extent of protection available under litigation privilege in those circumstances. Our report on the ENRC decision is available  here.

Background

The substantive proceedings involve a claim by liquidators against RBS for its alleged role in a wider missing trader intra-community fraud ("MTIC Fraud") in 2009. The fraud was said to have involved companies trading in European Union Allowances, or "carbon credits", failing to account to HMRC for the VAT which accrued on those trades and, instead, paying their VAT receipts to third parties before going into liquidation. Some of the trades in question had been executed by representatives of RBS and the liquidators have now alleged that, in doing so, RBS wilfully shut its eyes to what was an obvious fraud.

In late 2009, HMRC commenced an investigation into the alleged MTIC Fraud. Part of that investigation included a verification of purportedly fraudulent trades that had involved RBS and in relation to which RBS had reclaimed VAT repayments from HMRC as input tax. RBS cooperated with HMRC's investigation throughout 2010 and 2011. On 29 March 2012, HMRC wrote to RBS to inform it that HMRC considered there to be sufficient grounds to recover c. £90 million of input tax from RBS and, in response to that notice, RBS commissioned its own internal investigation into the alleged fraud. That investigation culminated in a report that was in 2014 provided to HMRC "to assist with an investigation into the factual circumstances surrounding the onboarding of and trading relationship with [five emissions trading counterparties]".

RBS' Investigation Documents and Litigation Privilege

In Bilta, an application was made for disclosure of the documents created by RBS in the course of its internal investigation into the alleged MTIC Fraud (the "Investigation Documents"). RBS' position was that the Investigation Documents (as opposed to the final report submitted to HMRC) were protected from disclosure by litigation privilege.

It was common ground between the parties that the Court should apply the test set out in Three Rivers District Council v Governor & Company of the Bank of England (No 6) [2005] AC 610  to determine whether RBS was entitled to its claim of litigation privilege. Three Rivers provided that, for a party to be able to claim litigation privilege, the following three criteria must be satisfied:

  1. litigation must be in progress or in contemplation;
  1. communications must have been made for the sole or dominant purpose of conducting that litigation; and
  1. the litigation must be adversarial, not investigative or inquisitorial.

The parties agreed that limbs (1) and (3) were met for the Investigation Documents. The question therefore was whether the second limb was met – whether the communications were made for the "sole or dominant purpose of conducting that litigation". In his judgement, Sir Geoffrey Vos concluded that the Investigation Documents were prepared for the dominant purpose of conducting contemplated litigation with HMRC and that limb (2) was therefore satisfied, for the reasons set out below.

When is a communication made for the "sole or dominant purpose of conducting litigation"?

In ENRC, Andrews J had rejected a claim of litigation privilege over investigatory documents on the basis that said documents had been created for the purposes of a report that was to be shared with the SFO in the context of without prejudice discussions and at a time when ENRC's relationship with the SFO was "collaborative rather than adversarial". In those circumstances, the investigatory documents could not be said to have been prepared for the sole or dominant purpose of conducting litigation.

The claimants in Bilta relied heavily on the ENRC decision, alleging that the purpose of RBS' investigation into the MTIC Fraud was not litigious, but rather to supply a full and detailed account of the relevant facts to HMRC and to persuade HMRC not to seek recovery of input tax. Bilta submitted that the Investigation Documents did therefore not meet the second limb of the test set out above.

However, the Court took a different approach on this occasion, noting that "the exercise of determining the sole or dominant purpose in each case is a determination of fact". With that in mind, Sir Geoffrey Vos commented that one could not "properly draw a general legal principle from [Andrews J's] approach" in ENRC and advocated a "realistic, indeed commercial view of the facts". The Judge considered that HMRC's letter dated 29 March 2012, which confirmed that HMRC viewed that it had "sufficient grounds" to deny RBS's claim to input tax, was a watershed moment in the investigation. It was akin to a Letter before Claim and RBS' decision to conduct its own investigation into the matter was to be equated with preparations for a response to a Letter before Claim. It followed that, while RBS' investigation was conducted in the context of ongoing discussions with HMRC, those discussions were part of the continuum that formed the road to the litigation that was considered, rightly, as it turned out, to be almost inevitable. In those circumstances, RBS' cooperation with HMRC did not preclude its investigation being conducted for the dominant purpose of litigation.

Comment

Bilta confirms that any claim of litigation privilege over investigation documents needs to be assessed on the specific facts of each case. It may be a comfort for corporates to hear the Chancellor's view that the controversial ENRC decision should not necessarily be used to draw any general legal principles on this issue. That decision is itself due to be heard by the Court of Appeal in July 2018 and it may be that the approach taken in Bilta is a sign of the direction in which that appeal will be decided. In the meantime, it is important to remember that both are first instance decisions; given the uncertainty around this area, the safest approach will usually be to assume that documents created during an internal investigation will not be protected by litigation privilege.

If the analysis in Bilta is to be favoured over that in ENRC, claims of litigation privilege over investigation documents will face less difficulty with the dominant purpose element of the Three Rivers  test. However, if your investigation involves a cross-border element, that in turn raises questions around different jurisdictions' varying approach to privilege. For example, voluntary disclosure of a privileged document to a regulator or prosecutor in the UK risks constituting a waiver of privilege in the US, not only over the document disclosed but also over other relevant privileged documents dealing with the same subject matter. You can read more  here. This disparity in approach to the scope of privilege across jurisdictions requires a nuanced risk assessment at the outset of any cross-border investigation.

The application of litigation privilege in the context of internal investigations remains a tricky area on which corporates should continue to work closely with their legal advisers. In circumstances where an internal investigation spans multiple jurisdictions, each with different approaches to the question of privilege, the issue is more complex still and needs to be approached holistically rather than in isolation under English law. We have developed our thinking in this area in conjunction with our international network of offices and in many jurisdictions we have the benefit of having experienced what works and what doesn't work in practice. We would be delighted to discuss our thinking and strategy with you.

The full judgment can be read here:  Bilta (UK) Ltd v Royal Bank Of Scotland Plc & Anor  [2017] EWHC 3535 (Ch).

So what should you be doing now to protect yourself, your team and your organisation while the landscape is unclear?

Click  here  to access our recent e-alert on the judgment.
Click here  for our article on the original ENRC decision on the website Fraud Intelligence.
Click  here  for the details of our Connected Compliance report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
WilmerHale
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
WilmerHale
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions