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.
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)  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:
- litigation must be in progress or in contemplation;
- 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 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.
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  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.