Managing an organisation's response to a regulatory crisis is a complex process. An important factor to be considered is whether a party can rely on litigation privilege in relation to any investigative materials which are produced. If so, potentially sensitive materials are protected from disclosure to a regulator or other third party.
The difficulties of claiming litigation privilege following legal developments over recent years were again illustrated by the findings of David Edwards QC sitting as a Deputy Judge in the High Court Queen's Bench Division in The State of Qatar v Banque Havilland SA and Vladimir Bolelyy  EWHC 2172 (Comm). In particular, the challenge of successfully arguing that litigation was reasonably in contemplation and that the work product was for the sole or dominant purpose of the litigation.
The Alleged Conspiracy
The claim for damages by the State of Qatar concerns the alleged involvement of the Defendants, Banque Havilland SA ("the Bank") and a former employee of the Bank ("Mr Bolelyy"), in a conspiracy to harm the Qatari economy by manipulating the market in Qatari Riyal (the currency of the State of Qatar) and USD Qatari bonds.
Two separate media articles reported these allegations. The second article (from November 2017) contained screenshots of slides from a PowerPoint presentation said to outline the strategy for the market manipulation conspiracy. The PowerPoint presentation metadata identified Mr Bolelyy as its author.
The Disclosure Dispute
The parties gave disclosure in the civil case following directions from the Court. Both Defendants' disclosure certificates stated that certain documents or parts of documents were being withheld. The Bank claimed that certain documents were not disclosed as they were covered by legal professional privilege.
Qatar subsequently made a disclosure application and sought to challenge several alleged disclosure deficiencies, including that a report prepared by PwC (dated June 2018) for the Bank was covered by litigation privilege.
Purpose of the PwC Report
On 13 November 2017, following an emergency meeting and various discussions, the Board of the Bank formally ratified a decision that PwC would be engaged to carry out a forensic investigation. The PwC instruction was described in internal correspondence as a "technical forensic audit" and a "forensic/IT investigation". The minutes of the 13 November board meeting indicated that PwC were to "audit [the] trail of [the PowerPoint presentation referenced in the media reports]". PwC's terms of engagement described the exercise as a "forensic analysis" which involved "the capture of the professional computers or any other electronic device of the suspected individuals, and perform[ing] a deep analysis to retrieve information around the data leakage and file creation".
Following the Board's 13 November meeting, the Bank met with its lawyers. A subsequently prepared witness statement described the agreement reached: "PwC would be engaged to carry out a forensic investigation into the Presentation and to produce a report setting out their findings". The findings would allow the Bank's lawyers to "advise ... as to possible liability and to assist ... in dealing with the [Luxembourg financial regulator]". The lawyers' engagement letter, ultimately executed in January 2018, confirmed that their mandate was to "assist [the Bank] on potential liabilities and guiding [it] through regulatory disclosure and proceedings with the [Luxembourg regulator]". No further detail was provided regarding the nature of the anticipated regulatory "proceedings".
Asserting Litigation Privilege
The Court detailed the principles of litigation privilege, starting with the scope of, and the requirements for, such a claim as found in the authorities:
- Litigation must be in progress or in contemplation;
- The communications must have been made for the sole or dominant purpose of conducting that litigation; and
- The litigation must be adversarial, not investigative or inquisitorial.
The Judge concluded that the PwC report was not protected by litigation privilege and that it must be produced for inspection. The evidence "as a whole" available before the Court (by way of disclosure and other witness statements) prompted the Judge to "look behind" the assertions in a witness statement claiming the PwC report was privileged.
He stated that the burden lies on the party claiming privilege to establish it and that the state of mind of the Bank in this instance was crucial. He found that 13 November 2017, when the PwC report was commissioned, was the most important point in time when considering litigation privilege.
Whilst the matters discovered were regarded as serious by the Bank, with the potential for significant legal and regulatory consequences, this was "too general to support the claim for litigation privilege". Litigation needed to be a "real likelihood rather than a mere possibility" (emphasis added) – see United States of America v Philip Morris Inc.  EWCA Civ 330. The Judge found that there was "little evidence to suggest that the [Luxembourg regulator's] position was, or was regarded by the Bank as, hostile, or that adversarial regulatory proceedings were, or were regarded by the Bank, as reasonably in contemplation". There was no threat of proceedings: the contemporaneous evidence in fact showed that the regulator was "fairly positive" and was "convinced that the Bank was not involved with the plan", with adverse developments not being expected.
These early positive signals did not subsequently deteriorate: the position regarding litigation privilege can evolve, as was the case in Tesco Stores Ltd v Office of Fair Trading  CAT 6 where an investigation developed into adversarial proceedings. The Judge found that the Luxembourg regulator's involvement did not go "beyond the investigative stage", nor was there any evidence to suggest that it would do so. He stressed that it was important to not judge matters with hindsight, but noted that the position remained that no proceedings were commenced against, and no sanctions were imposed on the Bank by the regulator concerning this matter.
The Defendants also cited anticipated adversarial proceedings by a UK regulator (the FCA) and a civil claim by Qatar. However, the Judge found that there was no anticipation of such adversarial proceedings. The UK regulator had no contact with the Bank prior to 13 November 2017 and there was not "any intimation or fear of a claim by Qatar against the bank, prior to 13 November 2017...". Even if it could be said that following receipt of a letter from the legal representatives of Qatar in December 2017, civil proceedings became one of the purposes of PwC's investigation and report (or at least one of the anticipated uses for it), this was not the dominant purpose.
The Judge did not accept that the PwC report was prepared for the sole purpose of anticipated adversarial litigation. Indeed, even if it had been argued that it was prepared for the dominant purpose of adversarial litigation amongst a number of purposes, the Judge would not have accepted such an argument.
The Judge set out what he saw as the two most prominent, and dominant, purposes of the report. Firstly, the report was commissioned to "find the facts", including determining how the PowerPoint presentation had been obtained from the Bank's files. Secondly, "to satisfy the [regulator] and put the Bank in a position where it could answer [the regulator's] questions". Contemporaneous records, such as internal email exchanges and telephone call transcripts, were considered by the Judge to determine the purpose.
Although it was unnecessary for the Judge to go on to consider whether privilege had been waived (an argument raised by the Claimant), he stated that he "would have needed a good deal of persuading that the circumstances in which the document was provided to the regulators [i.e. under a limited waiver of privilege] meant that privilege in the report had been waived generally".
The Involvement of Lawyers
The Defendants relied upon the fact that PwC was engaged by the Bank's lawyers, rather than directly by the Bank, and the terms of the engagement letters of PwC and its lawyers.
The Judge noted that the chronology gleaned from the material showed that a decision was taken by the Bank to instruct PwC independently of its instruction of lawyers. The Judge considered that there was an attempt to improve the prospect of a successful claim for privilege by channelling the PwC instruction through lawyers.
In relation to the engagement letters, the terms of reference of the instructing lawyers did not go far enough in demonstrating contemplated adversarial litigation. The purpose of the instructing lawyers was to assist the Bank in determining potential liabilities and providing guidance in regulatory disclosure "and proceedings" with the Luxembourg regulator. The Judge concluded that "there was little or nothing in the evidence to support the proposition that adversarial proceedings by the [the Luxembourg regulator] were (or were reasonably) contemplated at the time". There was said to be nothing in PwC's own terms which suggested a litigious purpose.
Following this judgment, it remains clear that each claim for litigation privilege will turn on its own facts.
With the risks of significant and increasing penalties for regulatory failings, organisations should consider crisis response well before a crisis, including having access to early specialist legal advice. This advice is necessary to understand what protections may be available and how to structure and progress an investigation, prior to generating materials which may be harmful in terms of, for example, liability and reputation.
The decisions which are made and the reasoning, such as identifying the specific litigation reasonably in contemplation and why, should be recorded in case a privilege claim is subsequently disputed. Instructions to third parties such as experts should also clearly record the purpose of the instruction and provide information to protect litigation privilege.
Finally, care should be taken regarding the issue of limited waiver when considering the disclosure of privileged documents, for example to a regulator.
Although less wide in scope, the potential availability of legal advice privilege (as opposed to litigation privilege), will continue to be another important protection to consider. There is a balance to be struck between the need to investigate and the risk of investigative materials being disclosable. It may be desirable in some instances for parties to investigate with the benefit of legal advice privilege whilst keeping the question of whether adversarial proceedings are contemplated under review. Depending on the circumstances, such an investigation may need to be limited in scope or with certain investigative tasks paused or only partially progressed until such time that there is a strong argument that the "real likelihood" threshold is clearly met and a claim for litigation privilege is likely to succeed.
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.