Companies warned on internal investigations after Court of Appeal rejects privilege claim

Out-Law News | 19 Feb 2018 | 11:40 am | 4 min. read

Statements made by an employee in the context of an internal investigation did not attract litigation privilege, and therefore could be referred to by the Health and Safety Executive (HSE) in a subsequent prosecution, the Court of Appeal has ruled.

The case is the third concerning litigation privilege to reach the courts during the last six months, and the second in which the court ruled against the claim of litigation privilege.

Alan Sheeley of Pinsent Masons, the law firm behind, was part of the legal team which advised RBS in a successful claim of litigation privilege just before Christmas. He said that the "sudden influx" of case law on the topic showed that companies must "proceed with caution before investigating an issue and producing documents".

"In particular, companies should carefully consider who they instruct to conduct the investigation before embarking on it, and more importantly why it is that they are instructing them. This is especially so, as at present only one out of the three cases before the courts have been determined in favour of litigation privilege applying. The days of a company or person claiming litigation privilege over documents without the fear of any challenge are now long gone," he said.

In September 2016, Paul Jukes, the alleged health and safety manager of waste company Gaskells NW Ltd, was convicted of breaching section 7 of the 1974 Health and Safety at Work etc Act (HSWA). The breach had caused the death of an employee of the company in a baling machine in 2010. Before Jukes was tried, managing director Jonathan Gaskell, the company and a fitter it had employed had all pleaded guilty to health and safety offences.

The prosecution's case was that Jukes had been responsible for health and safety and the maintenance of the baling machine. It relied on a signed statement Jukes had provided to the company's solicitors, DWF, in February 2011, in which he said that he "took over formal responsibility for health and safety" at the company and was "responsible for daily housekeeping and health and safety on site, including the implementation of site safety and working practices". According to the prosecution, these statements undermined Jukes' assertion in a prepared statement given to the HSE and the police that he was not responsible for health and safety.

Both the High Court and the Court of Appeal ruled that the February 2011 statement was admissible. At the time that the statement was made, the HSE had not made the decision to prosecute and matters were crucially still at an investigatory stage. The three-stage test for litigation privilege requires that litigation be in progress or reasonably in contemplation; that that litigation be adversarial in nature; and that the communication or document be made or created with the sole or dominant purpose of conducting that litigation.

Lord Justice Flaux, giving the judgment of the court, said that there was "no evidence from the company or from Gaskell, let alone from [Jukes]", that "any of them had enough knowledge as to what the investigation would unearth or had unearthed when the [HSE] concluded its investigations, that it could be said that they appreciated that it was realistic to expect the [HSE] to be satisfied that it had enough material to stand a good chance of securing convictions" back in February 2011.

"It is noteworthy in that context that the appellant was not even interviewed by the police and the Health and Safety Executive until June 2012 – sixteen months later," the judge said.

In May 2017, the High Court ruled that a document created by the Eurasian Natural Resources Corporation Ltd (ENRC) was admissible in the context of a criminal investigation by the Serious Fraud Office (SFO). The case is set to be appealed in July 2018. In the RBS case, on the other hand, High Court chancellor Sir Geoffrey Vos ruled that litigation privilege attached to all of the documents created during the investigation after the 'watershed' moment at which RBS instructed Pinsent Masons' litigation team for the purposes of its investigation.

"All the documents produced after this moment were clearly produced for the dominant purpose of defending the litigation, although it was noted that there was a dual purpose" said Alan Sheeley of Pinsent Masons. "A key part in the successful claim of privilege was the retainer letter, which described the scope of work as 'to provide legal advice in respect of a dispute with HMRC regarding the recoverability of income tax relating to purchases of carbon credits by RBS SEE'."

"Companies must take this as a serious warning. Solicitors must be the first point of contact before any investigation is embarked upon if they want to maximise their chances of successfully securing the cloak of litigation privilege. Solicitors will be able to manage the collection of evidence and can ensure that all parties know why documents are being created, and that they are for the client's benefit only. They can also ensure that when witness statements are taken, the person giving the statement knows that the witness statement is given under the cloak of privilege to avoid any later challenge and that any transcript reflects the same," he said.

"Investigators and accountants should also proceed with care. They should advise clients that they must take legal advice before pursuing any course of investigation in order for the client to be able to claim litigation privilege in respect of the documents produced. To quote Lord Justice Flaux, privilege 'does not simply float in a vacuum', and therefore cannot be attached to an investigation retrospectively. Failure to consider this issue from day one will lead to even more successful challenges as to privilege from third parties, including regulators. This will have the adverse result that the other party is effectively given an upper-hand as it will be able to see fundamentally important documents. This situation can be avoided with the correct legal advice," he said.

Health and safety law expert Kevin Bridges of Pinsent Masons added that, in light of the rulings, companies "may need to take a closer look at how they currently respond to health and safety and other incidents, when and how they investigate them and in what level of detail, when to engage specialist lawyers and the quality of the investigation reports that are produced".