If a regulated company suspects that trouble is brewing, how far will it be able to claim privilege (in any future civil litigation brought by a third-party claimant or any regulatory proceedings) over its internal investigations that were carried out before regulators became directly involved?
That was the issue recently considered in State of Qatar v Banque Havilland, but it is not the first time that the courts have grappled with this question. In essence, there is a balance to be struck: the courts wish to encourage companies to investigate allegations made by, say, a whistle-blower or a journalist, but they also are reluctant to limit disclosure of relevant documents in any eventual claim brought by an aggrieved third party.
What test needs to be met?
In order to withhold documents and information from a third-party claimant or regulator on the basis of litigation privilege, a company must show that they were made for the dominant purpose of conducting litigation that was in reasonable contemplation at the time. Litigation includes adversarial regulatory proceedings, but not early-stage investigations.
What happened in State of Qatar v Banque Havilland?
An employee of the defendant bank prepared an internal presentation that was leaked to a newspaper, which relied on the presentation to publish an "incendiary" article that made various allegations against the bank. The view of the bank was that adversarial regulatory proceedings might therefore be brought against it by various regulators (and, indeed, the bank had forwarded a copy of the article to its regulator and advised that it was investigating). The bank then decided to retain accountants to carry out a forensic investigation into the presentation and to report on their findings. When proceedings were commenced by a third-party claimant against the bank, it claimed litigation privilege over the report produced by the accountants.
The court has now found that the accountants' report is not privileged.
It was found that, at the time the report was commissioned, there was nothing to suggest that the regulators were going to commence adversarial regulatory proceedings or that they were "hostile". As the judge put it: the regulator "asked a number of questions about the .. article and the presentation, but it was not particularly aggressive or adversarial and it made no threat of proceedings". A mere investigation was insufficient to trigger litigation privilege – even if that investigation might subsequently turn into adversarial proceedings.
Furthermore, even if adversarial litigation had been contemplated at the time, the dominant purpose of the accountants' instructions was not to aid litigation but, instead, was to find the facts (including how the presentation had been leaked) and answer any questions that the regulator might ask in time. In reaching this conclusion, the judge relied, in part on the terms of engagement with the accountants – which made no reference to potential litigation.
Is this finding consistent with earlier caselaw?
This decision highlights the difficulty of ascertaining whether litigation privilege can be claimed where regulators are potentially involved. In Three Rivers , the House of Lords accepted that purely internal investigations carried out in furtherance of early-stage regulatory investigations are not privileged. But, on the other hand, in SFO v ENRC  the Court of Appeal supported the argument that a claim to privilege ought to be allowed before a formal regulatory investigation was commenced because "It is…obviously in the public interest that companies should be prepared to investigate allegations from whistle-blowers or investigative journalists, prior to going to a prosecutor…". The Court of Appeal recognised that if there was a risk of losing privilege in such circumstances "the temptation might well be not to investigate at all, for fear of being forced to reveal what had been uncovered whatever might be agreed (or not agreed) with a prosecuting authority".
There was no discussion of that public policy point here though and the judge apparently distinguished this case from SFO v ENRC on the basis that, in that case, the regulator had made it clear that it was taking a serious interest following publication of the relevant article – something which he felt was missing from this case. The dividing line, on the facts, between these that cases is arguably very narrow though.
Ultimately, the issue of whether privilege can be claimed will turn on the particular facts of the case (and the particular view of the judge hearing it). In reaching his decision here, the judge paid attention to the accountants' terms of engagement. The chances of being able to claim litigation privilege might therefore be strengthened by making sure that, when retaining external non-lawyer experts, companies emphasise that this is being done in order to help with any potential litigation or adversarial regulatory investigation. That will not solve the problem in all cases, but might go some way to help.
More prudently, companies should assume that litigation privilege cannot be claimed. To the extent that they wish to strengthen any subsequent argument about privilege being available, the investigation should be conducted using lawyers, in the context of seeking legal advice on the underlying issues identified. And the lawyers should do their utmost to ensure that the factual investigation is so intrinsically linked with the legal advice that has been requested and is being given, that the factual conclusions reached cannot be segregated from that legal advice.