PRIVILEGED OR NOT PRIVILEGED?
The High Court has confirmed in Bilta (UK) LTD (in Liquidation) & Ors v RBS and Ors  EWHC 3535 (Ch) that legal professional privilege can, under the right circumstances, apply to investigations.
The claimants, Bilta (UK Ltd) and various other associated companies in liquidation acting by their liquidators, issued an application notice on 25th September 2017 seeking disclosure and inspection of certain documents held by the first defendant, the Royal Bank of Scotland plc (‘RBS’). RBS’s answer to this application was to claim that these documents were subject to ‘litigation privilege.’
The substantive claim brought by the claimants arose from an alleged missing trader intra-community fraud (‘MTIC fraud’). The MTIC fraud in question involved companies trading in EUAs failing to account to HMRC for the value added tax (‘VAT’) which accrued and instead paying their VAT receipts to third parties before going into liquidation. The claimants argued that the directors of the companies in liquidation breached their fiduciary duties and/or acted with fraudulent purposes by causing their respective companies to execute such a fraud. The trades involved in the claimed fraud were carried out by representatives of RBS.
The documents in question were described as:
“The documents created after 29th March 2012 during the course of the investigation that led to the report by Pinsent Masons LLP on behalf of RBS to the Commissioners for Her Majesty’s Revenue and Customs [‘HMRC’] dated 28th January 2014 [the ‘PM report’] and any documents created after 28th January 2014 that formed part of that investigation…..They include some 29 transcripts of interviews with key RBS employees and ex-employees which I shall call the “interviews.”
The meaning of Legal Professional Privilege (“LPP”)
There are two types of LPP. These are;
- Legal advice privilege (confidential communications between lawyers and their clients made for the purpose of seeking or giving legal advice).
- Litigation privilege (confidential communications between lawyers and their clients, or the lawyer or client and a third party, which come into existence for the dominant purpose of being used in connection with actual or pending litigation).
This case concerned litigation privilege.
All parties agreed that the test for whether litigation privilege can be claimed was accurately stated by Lord Carswell in Three Rivers District Council v Governor & Company of the Bank of England (No 6)  1 AC 610 (‘Three Rivers’) at para.102 as follows:
“(a) litigation must be in progress or in contemplation;
(b) the communications must have been made for the sole or dominant purpose of conducting that litigation;
(c) the litigation must be adversarial, not investigative or inquisitorial.”
The issue in dispute was (b), whether the documents were made for the “sole or dominant purpose of conducting that litigation.”
The arguments of the parties
The Claimants argued that the documents were simply prepared as an essential part of the preparation of the PM report to HMRC and pursuant to RBS’s general duties and obligations as a tax payer.
RBS, on the other hand, contended that HMRC had spent two years investigating the situation prior to writing its 29th March 2012 letter to RBS (the ‘HMRC letter’). The HMRC letter constituted a ‘watershed moment’ at which HMRC had decided to make an assessment, albeit that they were prepared to wait to consider RBS’s considered comments before they did so. At that stage, RBS instructed outside litigation lawyers. The dominant purpose of producing the documents was to defend HMRC’s claim.
This is set out in The Law on Privilege, Second Edition (2011) at para.3.76:
“Dual Purpose Documents: Where a communication has been made for two or more purposes it is necessary to identify the dominant purpose. It is not sufficient if the relevant litigation purposes are merely secondary or even an equal purpose. When faced with the difficulty of deciding between two apparent purposes courts have sometimes concluded that two apparent purposes are merely inseparable parts of a single purpose and then just examined that overarching purpose … at base the question of dominant purpose is one of fact, hence previous decisions are not particularly helpful except as exemplifying various techniques of analysis …”
Were the documents and/or interviews created for the sole or dominant purpose of conducting litigation?
The court had no doubt that they were.
‘It seems to me that the HMRC letter did indeed amount to a watershed moment. Following an investigation into the facts, which had lasted more than two years, HMRC stated for the first time in the HMRC letter that it considered that it had sufficient grounds to deny RBS nearly £90 million by way of input VAT. The HMRC letter analysed the relevant law and applied the law to the facts as they understood them before asking for RBS’s comments on those facts. It was, therefore, similar in nature to a letter before claim…..…….I am not sure that it much matters whether the litigation purpose was the sole or merely the dominant purpose…….. one has to take a realistic, indeed commercial, view of the facts…….
I have, therefore, concluded that the documents and interviews were brought into being by RBS and its litigation solicitors for the sole or at least the dominant purpose of the expected litigation in the FTT following the expected assessment in respect of overclaimed input VAT. The documents and interviews were, therefore, covered by litigation privilege.’
Levy and Levy comment
This case contains important guidance on the circumstances in which advice given to taxpayers will attract the important protection of litigation privilege, one of the two types of LPP. The key to this case was the ‘watershed moment’ of the 29th March 2012 letter to RBS, when HMRC announced its intention to make an assessment, albeit that they were prepared to wait to consider RBS’s considered comments before they did so. The subsequent action by RBS of instructing lawyers crystallised the protection of litigation privilege. The moral of the story is that lawyers should be instructed as soon as any such ‘watershed moment’ occurs.
Levy and Levy – the tax investigations and litigation specialists.