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Litigation privilege bites back once again – is your investigation protected?

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United Kingdom

A recent decision of the High Court has thrown litigation privilege in the context of internal investigations back in the spotlight.

In State of Qatar v Banque Havilland SA, the Court held that an investigation report and associated documents prepared for Banque Havilland by PwC was not subject to litigation privilege as it was not prepared in reasonable contemplation of litigation or for the 'dominant purpose' of litigation.
 
For litigation privilege to apply, the material in question must:
  • be a communication between the lawyer and the client, or between either of them and a third party (or be a document created by or on behalf of the client or the client’s lawyer).
  • be made for the dominant purpose of litigation.
  • relate to litigation which is pending, reasonably contemplated or existing.

In 2018 the Court of Appeal's decision in SFO v ENRC  reversed a first instance decision which had held that an internal investigative report pursuant to a Serious Fraud Office investigation did not fall under litigation privilege. Until the Court of Appeal reversed it, this first instance decision caused no small amount of consternation amongst the legal and investigative community as it was feared that litigation privilege had been dramatically narrowed in scope. In reversing the decision, the Court of Appeal held that:

  • investigating the facts may be a subset of the overarching purpose of advising on contemplated legal proceedings rather than a separate competing purpose.
  • there was no principle that litigation privilege cannot arise until a company knows the full details of what is likely to be unearthed or a decision to prosecute had been taken.
  • advice to avoid or head off litigation was clearly privileged. 

The decision in Qatar v Banque Havilland appears to sit uneasily against this decision, although it may be differentiated on the specific facts. In Qatar, the claimant's claim arose from a 'blockade' placed around it by several Arab countries from June 2017. Qatar alleges that several banks, including Banque Havilland, acted in conspiracy to maximise the effect of the blockade by manipulating the value of the Qatari currency. In 2017, an employee of the bank had prepared a presentation which essentially described how the Qatari currency could be devalued by manipulative trading. This presentation (the "Presentation") was subsequently leaked and went public in November 2017.

The bank, through its lawyers, instructed PwC to investigate and produce a report on how the Presentation had been created, the extent to which it had been disseminated and how it had been leaked. The resulting report was completed in June 2018 and subsequently provided to the bank's Luxembourgish regulator to satisfy regulatory concerns and requirements.

In the course of the main action against the allegedly conspiring banks, Qatar applied for disclosure of the report and associated documents. The bank argued that these documents were subject to litigation privilege because they were made for the dominant purpose of litigation which was reasonably contemplated at the time (and which did indeed eventuate after the bank was subsequently sued). In this context, the bank highlighted that after it commissioned the investigation, it received a letter from lawyers acting for Qatar in December 2017 which requested a 'litigation hold' on documents (i.e. that the bank needed to preserve its documents and ensure nothing was deleted). The investigation was completed, and report delivered, following receipt of this letter.

Notwithstanding the fact that the bank did receive a legal letter from the ultimate claimant prior to completion of the investigation, the judge held that litigation privilege did not apply. This was based on the following reasons:

  • The point in time at which the bank's purpose needed to be assessed was when the instruction to commence the report was given. It was at this point that it needed to be determined whether litigation was reasonably contemplated.
  • At the time the investigation was commenced, the bank's contemplation of litigation was too general, something "more concrete" was required. Citing earlier decisions, the judge noted that litigation is not reasonably contemplated simply because of the "mere possibility" of litigation, nor is it enough that there is a "distinct possibility that sooner or later someone might make a claim".  Despite Qatar's litigation hold letter in December 2017, the judge held that there was no evidence that the bank actually anticipated a claim against it at that time.
  • Notwithstanding the lack of evidence indicating that litigation was reasonably contemplated, the judge held that the dominant purpose of the investigation was not for anticipated litigation. The purpose of the investigation was also to (i) find out how the investigation was leaked; and (ii) to provide to the Luxembourgish regulator to head off regulatory concerns.
  • Even though PwC had been instructed through the bank's lawyers, the decision to start the investigation had been taken by the bank before the lawyers' involvement. 

This decision highlights the fragile nature of litigation privilege in the context of investigations. Companies need to ensure that they carefully document the purpose of investigations as being for contemplated litigation (in a specific and not general manner) from the outset. The decision also serves to highlight that the absence of lawyers from the outset of an investigation (who can advise on whether litigation is reasonably contemplated and add weight to the dominant purpose test) is a factor that is highly likely to count against a company that is attempting to resist a disclosure application by another party in future litigation.

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