This decision is perhaps of greater interest for the discussion on litigation privilege in the context of investigations – something which was not pleaded in the recent RBS litigation (dealing with the scope of legal advice privilege).
It was common ground that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation attract litigation privilege so long as:
- the litigation is adversarial, not investigative or inquisitorial;
- litigation is in progress or reasonably in contemplation; and
- the communications are made with the sole or dominant purpose of conducting the anticipated litigation.
The company argued that a criminal investigation by the SFO should be treated as adversarial litigation for litigation privilege purposes. The judge, however, rejected this argument as misconceived. The SFO has a dual function as investigator and prosecutor. An SFO investigation is only a preliminary step to uncover relevant facts before any decision to is taken to prosecute. At the investigation stage the process cannot be said to be adversarial. In the judge’s view, “[t]he policy that justifies litigation privilege does not extend to enabling a party to protect itself from having to disclose documents to an investigator”. There was even less reason for the court to hold that documents prepared as part of the internal investigation, before the SFO commenced its own investigation, could be protected by litigation privilege, since there was no evidence of the company expecting to find any incriminating material and it had previously promised to provide these to the SFO in the spirit of cooperation.
Litigation in contemplation
The judge recognised that the test as to when litigation can be said to be anticipated is “notoriously difficult to express in words”, but noted that the person seeking to claim litigation privilege must establish that it was aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility. The reasonable contemplation or onset of a criminal investigation by the SFO (which the judge held did not constitute adversarial litigation for litigation privilege purposes) did not necessarily equate to the reasonable contemplation of a prosecution: “[t]he investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous process … so that the reasonable expectation of the one necessarily involves the reasonable contemplation of the other”. Even where allegations of criminal conduct were being investigated, prosecution only becomes a real possibility once it is discovered that there is some truth in the allegations. Here, there was no evidence that anyone at the company was ever aware – either before or after the SFO’s criminal investigation began - that a criminal offence had been committed. It could not therefore be said that anyone at the company reasonably contemplated litigation as a real likelihood rather than a mere possibility while the fact finding continued. A fear of prosecution on a “worst case scenario” was not enough to trigger litigation privilege.
The reasoning of Andrews J as to when a criminal prosecution can be said to be in reasonable contemplation was specifically endorsed by the Court of Appeal in the subsequent case of R v Jukes  EWCA Crim 176.
Dominant purpose test
The judge went on to find that even if criminal proceedings were in reasonable contemplation, none of the documents in question were created for the dominant purpose of using in, or obtaining legal advice relating to the conduct of, such anticipated criminal proceedings. While the company argued that the dominant purpose of the documents was the obtaining of legal advice pertaining to the conduct of the anticipated criminal litigation, the judge was not persuaded that this was even a subsidiary purpose of the creation of the documents, let alone the dominant purpose. In the judge’s view, the primary purpose of the investigation was to find out if there was any truth in the allegations and then to decide what to do about it if there was. The dominant purpose of the accountants’ reports was to meet compliance requirements or to obtain accountancy advice on remedial steps as part and parcel of a comprehensive books and records review. On the evidence, the accountants’ engagement had little or nothing to do with the preparation of a defence to, or obtaining legal advice in respect of, prospective criminal litigation.
The judge also noted that any legal advice which was sought based on the outcome of the internal investigation would have been on how to minimise or avoid the risk of prosecution by the SFO, as opposed to on how to conduct a defence to a criminal investigation, and that avoidance of a criminal prosecution cannot be equated with the conduct of a defence to a criminal prosecution for litigation privilege purposes. Although the judge conceded that it may be possible for documents to be generated for the dual purpose of assisting a company to persuade the SFO not to prosecute and also to help the company mount a defence to criminal proceedings if that failed, the judge held that the evidence in this case did not establish such a dual purpose, let alone that the latter purpose was the dominant one. The judge also added that documents created with the specific purpose or intention of showing them to the potential adversary in litigation are not subject to litigation privilege. Given that the company had committed to share the results of its internal investigation with the SFO, it could not, at the same time, claim litigation privilege over these materials.
For all of these reasons, the judge held that the claim to litigation privilege failed on all counts.
A seemingly broader approach to the question of dominant purpose was taken in the subsequent case of Bilta (in liquidation) v RBS  EWHC 3535 (Ch). In that case, the claimants sought documents relating to an internal investigation carried out by external lawyers. The claimants did not dispute that litigation was in contemplation. (i.e. a threatened assessment by HMRC in respect of over-claimed VAT). However, the issue was whether the internal investigation documents sought were created for the dominant purpose of use in the litigation (i.e. the HMRC assessment).
The claimants argued that the internal investigation documents were not covered by litigation privilege on the basis of a statement in correspondence from the bank’s lawyers that the purpose of the investigation had been to provide a full and detailed account of the relevant facts. The bank successfully argued that the dominant purpose in producing the documents was to defend HMRC’s claim. The court noted that a key point in the chronology was a March 2012 letter from HMRC stating that it had decided (after two years of investigating) to make an assessment but was prepared to wait to consider the bank’s comments before it did so – and it was at this stage that the bank instructed external lawyers. The fact that the bank tried to cooperate with, and met with HMRC on several occasions did not preclude the internal investigation being conducted for the dominant purpose of expected litigation. It was held that the documents were brought into being for the dominant purpose of expected litigation and were therefore privileged.
In addition, the Chancellor considered that dicta in ENRC suggesting that privilege cannot attach to documents created for the purposes of trying to avoid litigation did not give rise to a general legal principle and did not reflect the commercial reality of the present case (although he did not expressly criticise the conclusion that attempts to settle prevented the litigation from being the dominant purpose on the facts of ENRC). Moreover, he stated that it is clear from the authorities that it is necessary “to take a realistic, indeed commercial view of the facts … [the bank] was not spending large sums on legal fees here in the hope that HMRC would be dissuaded from issuing an assessment. If that is properly to be regarded as a purpose of the investigation at all, it was obviously a very subsidiary purpose”.