Forensic investigations vs. claims to litigation privilege – incompatible?

The decision in State of Qatar -v- Banque Havilland SA and others [2021] EWHC 2172 (Comm) provides a useful reminder of the risks posed to claims to litigation privilege in circumstances where the communication(s) in question may be referable to several competing motives. As ever, the courts look at the substance rather than the form when assessing a claim to litigation privilege.

Background

Banque de Havilland were alleged to have been part of a conspiracy against Qatar involving the use of bonds to undermine the Qatari economy.  The bank notified its regulator and engaged an accountancy firm (the “Forensic Investigators”) to conduct a forensic investigation into allegations published in the ‘Business Standard’.  The Forensic Investigators were appointed via the bank’s lawyers.

The Forensic Investigators’ engagement letter specified that it would conduct its work under the cloak of litigation privilege.  The bank subsequently declined to disclose either the Forensic Investigators’ report or drafts, in the context of the claim later brought by the State of Qatar. The bank had also redacted references to the Forensic Investigators’ report in communications with its regulators on the basis of privilege.

This decision finds that litigation privilege did not arise in respect to the report, drafts of it or related redactions. 

Reasoning

It is well established that communications between a litigant and a third party only attract legal privilege if the communications are made for the sole or dominant purpose of litigation which is on foot or within the party’s reasonable contemplation (Three Rivers District Council -v- Governor and Company of the Bank of England (No 6) [2004] UKHL 48).  The litigation must be adversarial – not investigative or inquisitorial.

In this case, the claim to litigation privilege over the Forensic Investigators’ report, and communications regarding it, failed because litigation was not held to have been within the bank’s reasonable contemplation at the relevant time.  Neither did the terms of engagement of the Forensic Investigators indicate that the report was for the sole or dominant purpose of conducting litigation.

The Court found that no communication had been received from the claimant (the State of Qatar) in respect of its claim at the time of the relevant communication with the Forensic Investigators – regardless of what later befell.  The bank submitted that adversarial proceedings brought by its regulator had been reasonably contemplated.  However, the Court held that the regulator was merely asking questions at the relevant time, and those were not held to be adversarial.  For this aspect of the test to be met, the Court held that more than a distinct possibility of litigation/adversarial proceedings was required, and this burden had not been discharged by the bank.

The Court furthermore held that, as litigation was not in reasonable contemplation when the Forensic Investigators were instructed, it is conceptually consistent that the engagement was not for the sole or dominant purpose of litigation.  The Court also held that there were other reasons for instructing the Forensic Investigators, such as investigating how the was allegations had been leaked to the press and to answer the regulator’s questions.  The fact that the Forensic Investigators were instructed via the bank’s lawyers did not ‘cure’ the claim to litigation privilege.

Comment

In many ways this decision seems rather hard on the bank.  There was ultimately a claim by the State of Qatar and the regulator did later contemplate adversarial proceedings.  Furthermore, the bank had sought to take the right precautions by engaging the Forensic Investigators via its lawyers and drafting terms of engagement that anticipated claims to litigation privilege.  

But the Court looks at the substance and not the form.  And the litigation privilege test is assessed as at the time of the communication, not wearing the spectacles of hindsight. 

Therefore, a firm being instructed in a similar situation should consider what stage of proceedings, and/or anticipated proceedings and their likelihood of materialising, are contemplated by the terms of the retainer.  That retainer is also an important place to give considered thought to recording the dominant purpose of the instruction in a way that will avoid undermining a claim to litigation privilege.

If the client has regulatory motivations for the instruction, it may increase the chance that litigation privilege will not apply.  This case shows that preparing answers for the regulatory body will act as a ‘dual purpose’ and the dominant purpose threshold may well not be met.  Likewise, an agreement to provide additional services outside a litigation context may undermine the ‘dominant purpose’.  Firms that also provide a detailed analysis of client’s infrastructure and/or long-term strategy may inadvertently undermine a claim to litigation privilege over their work.  This is a risk facing the offering of full-service firms which can be anticipated by working in stages and compartmentalising engagements such that the dominant purpose of a given instruction is simpler and clearer.

There is also the risk of promising, but failing, to deliver a privileged product and what that may mean in terms of exposing the firm to litigation brought by its client.  Firms will need to be careful that engagement teams do not over promise and under deliver in an area outside their expertise.