In this issue
Ill-gotten gains and Unexplained Wealth Orders: A new game of hide and seek?
Co-operation need not lead to loss of privilege: SFO v ENRC revisited.
Assessing the Value of Benefit: Gross Turnover or Profit?
Business crime and the draft Sentencing Code
Regina v ALI BAHBAHANI [2018] EWCA Crim 95
R (on the application of Gibson) (Appellant) v Secretary of State for Justice (Respondent) [2018] UKSC 2
Co-operation need not lead to loss of privilege: SFO v ENRC revisited.
Peter Caldwell
Peter Caldwell

By Peter Caldwell 

Casenote: Bilta (UK) Ltd v Royal Bank of Scotland Plc [2017] EWHC 3535 – A decision of the Chancellor of the High Court, Sir Geoffrey Vos considering the issue of dominant purpose for the operation of litigation privilege.


As we await the outcome of the appeal against the decision of Mrs Justice Andrews in SFO v ENRC (to be heard in June), the Chancellor has given a decision which many will see as more alive to the realities of dialogue between corporates and government agencies.


The claimants had applied for disclosure of documents, including 29 interview transcripts, which had been prepared as part of a report provided by RBS to HMRC in response to an HMRC investigation of VAT fraud.  RBS had asserted privilege, maintaining that dominant purpose of producing the report and the intention behind the conduct of the interviews had been to resist HMRC’s almost inevitable tax assessment.


The background concerned an investigation commenced by HMRC in 2010 into claims for input tax (nearly £90 million) from a suspected MTIC VAT fraud paid to a subsidiary of RBS which had been engaged in spot trading of carbon credits in 2009. 


RBS assisted HMRC with its investigation from 2010, but in 2012 HMRC sent RBS a letter stating that there might be grounds to deny RBS’s VAT reclaim under the Axel Kittel principle and gave RBS an opportunity to provide further information.  RBS instructed external solicitors who conducted an internal investigation and in 2014, submitted a final report on the factual circumstances surrounding the trading relationship with the counterparties.  The report stated that RBS did not waive LPP in providing the report to HMRC.


The parties were agreed that the test for whether litigation privilege can be claimed was accurately stated in Three Rivers District Council v Governor & Company of the Bank of England (No 6) [2005] 1 AC 610.  There was no dispute that the documents were brought into being when litigation was in contemplation, nor that the litigation in question was adversarial in character.  The issue was whether RBS had established that the documents were made for the sole or dominant purpose of conducting that litigation.


In seeking to defeat the claim of privilege the Claimants relied heavily on the decision in Serious Fraud Office v Eurasian National Resources Corporation Ltd [2017] 1 WLR 4205 (ENRC).  There, Andrews J had rejected the argument that litigation privilege could extend to third party documents created in order to obtain legal advice as to how best to avoid contemplated litigation (even if that entailed seeking to settle the dispute before proceedings were issued).  She had referred to the relationship with the SFO in that case being collaborative rather than adversarial; that the “commitment to transparency and sharing of information” was made in the knowledge and expectation that the SFO would want to satisfy itself that the reports were accurate and thorough, and carry out its own audit.  A document created with the specific purpose or intention of being shown to a potential adversary in litigation, therefore could not subject to litigation privilege. 


In referring to ENRC the Chancellor identified a tension between Andrews J’s judgment and the decision in Re Highgrade Traders [1984] BCLC 151, a case which he noted did not appear to have been directly cited to her.  In Highgrade the Court of Appeal had held that there may well be two purposes in obtaining reports; to assess liability based on an investigation and to make evidence available to defend litigation.  To limit consideration of the dominant purpose to only those documents created for the purpose of actually being used in evidence was to confine litigation privilege within too narrow bounds.


The judgment of Andrews J had relied upon dicta from the Federal Court of Australia in Bailey v Beagle Management Pty [2011] FCA 185 to the effect that a privilege could not attach to a document which was created for the purpose of being shown to the other side, particularly where as in SFO v ENRC, litigation had not commenced.


The Chancellor did not regard the commencement of litigation as a necessary threshold to be crossed.  Although the contemplation of adversarial litigation had not been in dispute, he stressed that HMRC’s 2012 letter indicating the possibility of an adverse assessment marked a watershed in the relationship, however collaborative it might have remained.  In a courteous analysis of the decision of Andrews J he noted that the court’s consideration of the dominant purpose issue is a fact specific determination. 


He did depart from Andrews J however, in holding that the cooperative nature of RBS’s interactions with HMRC had not changed the position in principle.  He noted that it is commonplace for HMRC to canvass the views of large corporate taxpayers prior to formally issuing an assessment and the burden was plainly on RBS to convince HMRC not to do so.


That approach may be said to reflect greater appreciation of the realities of interactions between corporates and government authorities.  The report had set out the reasons why RBS thought that HMRC was not entitled to deny it input tax. It was supported by a detailed, legal and factual analysis.  It would be have been possible or appropriate to fillet the interviews over which privilege was claimed from the analysis contained in the report.


Andrews J had distinguished between the purposes of a party equipping itself with evidence to mount a defence and equipping itself with evidence to persuade a potential opponent from commencing proceedings.  Assuming contemplation of adversarial litigation, however, it is hard to see why as a matter of principle a distinction should be made between these two purposes, which in practice are very likely to be contemporaneous.  It might questioned why the underlying process of assembling a party’s case should be determined by the opposing party’s decision whether to pursue a claim. 


Although the decision on the facts might be said to have been open to Andrews J, on closer consideration of the authorities it is to be doubted whether that decision should have been expressed as a statement of principle.  That may be the preserve of the Court of Appeal later in the year.