The decision by High Court chancellor Sir Geoffrey Vos in the case, Bilta & Ors v RBS & Anor, also serves as a reminder that large companies seeking to launch an investigation should seek specialist legal advice at the earliest opportunity. The fact that RBS had instructed a specialist tax litigation team at the outset to lead the investigation was one of three factors that led to the judge finding in favour of the bank.
Pinsent Masons, the law firm behind Out-Law.com, acted on behalf of RBS in the case.
The law regarding the privileged status of investigations has been in flux since the May 2017 decision in a case between the Serious Fraud Office (SFO) and Eurasian Natural Resources Corporation Ltd (ENRC). This was because part of Mrs Justice Andrew's judgment in that case suggested that investigations where the purpose was to equip "yourself with evidence that you hope may enable you (or your legal advisers) to persuade [a third party] not to commence proceedings against you in the first place" did not have a litigation purpose, and therefore litigation privilege might not apply to documents created during that investigation.
This meant that documents created during the course of an internal investigation might be subject to disclosure requirements during subsequent litigation. A decision-maker in a large organisation, faced with an allegation of wrongdoing from a third party, would not be able to go about investigating matters in the usual way.
The ENRC case is set to be appealed in July 2018, but the Bilta case goes some way towards addressing this uncertainty. RBS had received a letter from HM Revenue and Customs (HMRC) alleging that RBS had participated in various transactions connected with fraud and that HMRC had grounds to deny the bank's claim for VAT input tax. RBS conducted a large internal investigation. Bilta and various associated companies were interested in seeing the documents produced in the course of that investigation, especially the transcripts of various interviews conducted by RBS's legal representatives, Pinsent Masons. RBS maintained that the documents were covered by litigation privilege.
The test for whether litigation privilege can be claimed dates back to the 2005 Three Rivers case, and was set out by Lord Carswell as follows:
- litigation must be in progress or in contemplation;
- the communications must have been made for the sole or dominant purpose of conducting that litigation;
- the litigation must be adversarial, not investigative or inquisitorial.
Bilta and the other claimants argued that RBS did not meet the second part of that test. Instead, they argued that the documents had been created to inform RBS of its position regarding HMRC's allegations; to supply a full and detailed account of the relevant facts to HMRC in line with RBS's duties as a taxpayer; and to persuade HMRC not to issue an assessment.
Dismissing Bilta's application, Lord Justice Vos found that there was nothing special about investigations when first principles were applied. The correct approach to assessing whether litigation privilege should be applied was to "take a realistic, indeed commercial, view of the facts". While the judge acknowledged that RBS's documents may have been created for multiple purposes, it was clear to him that the dominant purpose was their use in litigation. Any other purposes that may have existed were subsidiary to their requirement for litigation.
In Lord Justice Vos' view, the critical factors were as follows:
- HMRC's letter was a "watershed" moment as it was analogous to a letter before claim, and the response produced by RBS was closely comparable to a response to a letter before claim;
- the decision by RBS to instruct Pinsent Masons' specialist tax litigation team at the outset to lead the investigation "strongly suggest[ed] that RBS anticipated a claim and was gearing up to defend it";
- the bank's collaborative and cooperative approach towards HMRC after receipt of the letter did not change the fact that it was preparing for litigation. This was shown in the terms of the response provided to HMRC, which was the fruits of Pinsent Masons' investigation which provided a detailed, legal and factual analysis explaining why HMRC was not entitled to deny the RBS input tax claim.
The case is a reminder that large companies seeking to launch an investigation should seek specialist legal advice at the earliest opportunity. Solicitors are not only able to advice in privileged circumstances, but their being on the scene can help evidence that the dominant purpose of an investigation is a litigation purpose if this is ever called into doubt. Solicitors can also help scope the investigation appropriately, and can advise on the practical steps to be taken to maximise the chance of the privileged status of documents created during the investigation surviving a future specific disclosure application.
Alan Sheeley is an investigations expert and Stuart Walsh is a tax litigation expert at Pinsent Masons, the law firm behind Out-Law.com.