Cases on privilege and how it can be maintained (and easily lost) – have been coming through regularly recently – including most importantly earlier this year in the context of judicial review proceedings involving Jet2 and the Civil Aviation Authority (CAA).
Wrinkles in EU law which create difficulties for in-house lawyers acting in relation to EU competition investigations are well known, but the complexities of privilege can also mean that some communications with in-house lawyers may not be covered by privilege (as the CAA found in Jet2) even in a non- EU, non- competition context: in Jet 2.com the dominant purpose test was held to apply to communications in respect of which legal advice privilege is claimed, just as it does where litigation privilege is claimed. See our update on Jet2.com here.
Here we look at communications between lawyers and other professional advisers, and the risks of addressing a wide group of advisers with 'mixed purpose' communications containing sensitive material.
- This claim stems from an ongoing investigation by the Financial Reporting Council (FRC) into Grant Thornton's 2015/2016 audit of the financial statements of Sports Direct International Plc (now Frasers Group Plc) (SDI), owned by UK billionaire Mike Ashley.
- In 2014, SDI’s subsidiary, Sportsdirect.com Retail Ltd (SDR) instructed law firm Reynolds Porter Chamberlain LLP (RPC), SDI’s solicitors, and accounting firm Deloitte LLP (Deloitte) after receiving an email from the French tax authorities asking SDR a number of questions including whether SDR paid English or French VAT. SDR's then-head of finance took the query to mean that the French tax authorities would initiate a full enquiry into SDR's sale processes, despite the fact that the email made no mention of any litigation. Three reports were subsequently prepared containing Deloitte's and RPC's advice. They included advice on: (1) the lodging of protective claims with HMRC for repayment of overpaid VAT, in case it turned out that SDR should have been paying VAT in other Member States rather than the UK; (2) how best to defend SDR's proposed new tax structure; and (3) how to improve or change the arrangements so as to make them more robust and less likely to be successfully challenged.
- The issue for the judge in this application was whether the three reports in the hands of SDI were privileged from production to FRC, on the grounds of litigation privilege.
- The High Court held that the advice from Deloitte was not prepared for the sole or dominant purpose of litigation, and as a result, the three reports were not protected from disclosure by litigation privilege.
- In his judgment, Lord Justice Nugee held that, even if at the time that the three reports were produced, SDR expected there to be litigation over its VAT arrangements, in France or in another Member State, this did not establish that Deloitte's advice was prepared for the sole or dominant purpose of that litigation.
- Lord Justice Nugee said, “A taxpayer who takes advice as to how to structure his affairs does not do so for litigation purposes. He does so because he wants to achieve a particular result for tax purposes… Even if it is contemplated that the particular structure will be likely to be attacked by the relevant tax authorities and that there will be litigation, the advice as to how to implement the new structure… is not primarily advice as to the conduct of the future possible litigation. It is primarily advice as to how to pay less tax."
- This judgment is a useful reminder that,
- in order for litigation privilege to apply, the relevant document must have been created for the dominant purpose of obtaining advice in relation to litigation that is reasonably in contemplation. Even if it is contemplated that a proposed new tax structure will likely be subject to litigation, advice as to how to adopt and implement that tax structure is not advice as to the conduct of the potential litigation.
- advice about a possible course of action may not be covered by litigation privilege, even if it is anticipated that the particular course of action may result in potential future litigation.
- there is a distinction between commercial and litigation-related purposes, and corporate organisations are likely to face difficulties in attempting to ensure that a communication with mixed purposes will be privileged, including advice sought from accountants and other professional advisers who are not lawyers.