On 5 September 2018, the Court of Appeal handed down its judgment in the case of The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited and the Law Society  EWCA Civ 2006, overturning a controversial decision of the High Court concerning the scope of legal professional privilege (LPP) in internal investigations. The decision has been welcomed by both businesses and the legal profession alike.
The law of privilege
The availability of LPP is a critical issue for businesses. If a document is privileged, then it is generally protected against disclosure in legal proceedings and also to enforcement authorities in an investigation. Documents created following an incident (including witness statements and investigation reports) could become very damaging for both the organisation and individuals if they were disclosable and LPP has accordingly been seen as a key protection for many years.
LPP takes two forms: Legal Advice Privilege and Litigation Privilege.
Legal Advice Privilege
- Applies to communications between clients and their lawyers in connection with the giving of legal advice.
- This includes documents which reflect such communications.
- Only communications between a client and a lawyer will be protected by Legal Advice Privilege. Communications between a lawyer and third parties are outside the scope of the protection.
- The term ‘client’ has been narrowly construed and in the context of a large company will be a small defined group, including directors and the chief executive etc.
- Litigation Privilege does apply to communications with third parties – but only if the following test applies:
- Litigation is in progress or reasonable contemplation;
- The communication was made for the sole or dominant purpose of conducting that litigation; and
- The litigation is adversarial – not investigative or inquisitorial.
- This is known as the Three Rivers No. 5 Test.
Background to SFO v ENRC
In 2011, following a whistle-blower report, ENRC began an internal investigation into alleged corruption and fraud in its overseas operations. The SFO opened a criminal investigation into ENRC in April 2013 and sought disclosure of various documents created by ENRC’s lawyers and accountants during the internal investigation. This included notes of interviews between the company’s lawyers and employees and materials generated as part of a ‘books and records’ review by forensic accountants. ENRC refused to supply the on the basis they were covered by LPP.
On 8 May 2017, the High Court decided in the SFO’s favour, finding that none of the documents were covered by litigation privilege. In the High Court’s view, the documents had been created at too early a stage for criminal proceedings to be reasonably contemplated. The SFO had commenced an investigation, but that was not the same as a criminal prosecution. A criminal prosecution could only be reasonably contemplated once the potential defendant had sufficient knowledge of the facts to be able to say that the prosecutor would be satisfied there was a good chance of obtaining a conviction. It was stated: “a fear of prosecution on a worst case scenario is not good enough”.
Furthermore, even if a prosecution had been reasonably contemplated, none of the documents had been created with the dominant purpose of being used in such litigation, but had been produced in order to be provided to the SFO as part of their investigation with the intention of avoiding such litigation. It was also relevant, the Court held, that ENRC has always intended to show the documents to the SFO as part of promised cooperation.
In respect of Legal Advice Privilege, again this was not considered to apply. In the High Court’s view, and following the decision in Three Rivers No. 5, the interview notes were not communications between ENRC’s legal advisers and their “client” (i.e. persons in ENRC authorised to seek and obtain legal advice). Rather, they were notes of communications with employees who were essentially third party witnesses. Furthermore, the information in most of the documents was provided for the purpose of fact-finding, rather than to obtain legal advice.
The decision proved controversial.
The Court of Appeal’s Decision
Following an appeal by ENRC, in which the Law Society also intervened and made submissions, the Court of Appeal almost entirely overturned the High Court’s decision, concluding that the High Court erred both in law and in its interpretation of the facts of the case.
The Court of Appeal concluded that criminal proceedings were reasonably contemplated in this case. ENRC had engaged lawyers to conduct an internal investigation and the SFO had made clear the prospect of a criminal prosecution in its correspondence at the outset. The documents were brought into existence by ENRC for the dominant purpose of resisting or avoiding these, or some other, proceedings.
The Court of Appeal also made some valuable statements of principle. Among the most important are:
- The fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party (which was not proven in this case in any event) does not automatically deprive the document of Litigation Privilege;
- There should be no distinction between contemplation of civil or criminal proceedings when considering Litigation Privilege; and
- Heading off, avoiding or settling proceedings is a proper purpose within the scope of Litigation Privilege, just as advice given for the purpose of resisting or defending such contemplated proceedings is within the scope.
The Court of Appeal’s view was that this case was primarily about Litigation Privilege and the request to widen the scope of Legal Advice Privilege by revisiting the 2003 decision in Three Rivers No. 5 was said to be a matter falling to the Supreme Court. That said, towards the end of the judgment the Court of Appeal added: “if it has been open to us to depart from Three Rivers No. 5, we would have been in favour of doing so”(i.e. adopting a wider interpretation of the definition of ‘client’). For present purposes however, the position remains that Legal Advice privilege can only cover information received from the client, or in the case of a corporate entity, persons the company has authorised to seek or receive legal advice.
Comment & Practical Recommendations
The decision is positive news for those facing criminal or regulatory investigation as it recognises the importance of companies being in a position to investigate without losing the protection of LPP.
Cases will of course continue to turn on individual facts, but the reality is that investigations, and other work preparatory to potential criminal prosecutions, can now take place with far greater confidence that LPP will be protected, even where a regulator has not yet commenced formal action.
The Court of Appeal’s judgment also paves the way for the Supreme Court to review the current test for Legal Advice Privilege and, in particular, the question of who constitutes the ‘client’ which has been a difficult issue for large businesses ever since the decision in Three Rivers No. 5.
Most importantly, this case serves as a useful reminder of the practical steps we advise all businesses to take when responding to a serious incident:
- Any internal investigation should be conducted from the outset by a specifically established investigation team including internal and also, where appropriate, external legal counsel. Engaging external lawyers early may assist in demonstrating that litigation is contemplated.
- The investigation team must establish the terms of reference for the investigation remembering that the dominant purpose has to be for dealing with the anticipated litigation and not for purpose of internal reporting or as part of standard company procedure.
- The legal team should send an email immediately upon receipt of notification of a serious incident instructing the internal team to commence an internal investigation and obtain witness statements etc. This email should be marked as covered by LPP, identify who the client is and record the fact that criminal and/or civil litigation is anticipated.
- A detailed file note should be created as soon as possible by the appointed lawyer recording why both criminal and civil litigation is anticipated. This note should be kept on file as an audit trail.
- All privileged internal investigation documents should be marked “Confidential and Legally Privileged”.
- Distribution of the investigation documents should be carefully controlled and restricted to those within the internal investigation team.
This post was written by Kathryn Turner. For further information, please contact:
Kathryn Turner, senior associate, Regulatory
T: 0161 836 7987
Kate Oliver, associate, Regulatory
T: 0121 234 0177