Law360

Last week saw the issuance of SFO v ENRC [2017] EWHC 1017 from the London High Court. Everyone agrees it has a lot to say on the vitality of legal professional privilege in the UK, and also the conduct of internal investigations in the UK. Here are our practical takeaways:

Tough Cases Make Bad Law

The ENRC case is the very rare case of a complete breakdown in the tripartite social contract of the modern internal investigation. The Serious Fraud Office agreed to let Dechert LLP undertake an internal investigation on behalf of ENRC. Dechert did $20 million worth of investigative work and commissioned extensive forensic audit work. ENRC then fired Dechert, sued them and SFO was left with nothing to show for having for having sat on the sidelines patiently and waited for a report. As a mentor of Matt’s used to say, with this the SFO would not up with put. The SFO, keen to get a return on its “investment” in the aborted internal investigation and no doubt mightily suspect that Dechert was canned because they found bad stuff (although let’s not forget the fact that the SFO itself moved the goalposts as to how cases would be handled by rescinding its 2009 self-reporting guidance mid-investigation), demanded that ENRC turn over all non-opinion-work-product from the investigation, which is to say interview memos, forensic audit reports and related materials.

It's tempting to be flip and say this would never happen in the US (but can anyone say that about anything in the US these days?) but one cannot underestimate the social contract point — we always tell clients that they should understand that if they go down the path of the internal-and-full-government-cooperation they certainly retain the right to fire us down the line, but that the client should have no misunderstanding that the government will react really, really badly (read: subpoenas, and maybe agents with badges and guns). It ends up we need to add a couple more “badlys” to that sentence.

UK Privilege Has Always Been More Narrow and Fragile than US Privilege, But this Decision Makes No Sense

Focusing on the witness statements/interviews there are two elements to the analysis — whom did the questioning lawyers represent (see below) and were the interviews done in anticipation of litigation. Full stop. Under the heading of “separated by a common language” understand that when the UK courts talk about “litigation” they mean both civil litigation and criminal prosecution. So, when a company is cooperating with a criminal enforcement agency like the SFO and are conducting an internal investigation can there really be any doubt that the work of the company’s lawyers is in anticipation of a contested legal dispute with said enforcement agency? The court furnishes the following ipse dixit in response:

“Equipping yourself with evidence to enable you to conduct your defence ... is something entirely different from equipping yourself with evidence that you hope may enable you (or your legal advisers) to persuade him not to commence proceedings against you in the first place.”

That makes ... no sense. It’s like saying well, geez, war plans are secret if you are actually in a war but not if you are trying to resolve a dispute diplomatically so as to avoid a war. And what exactly happens when talks break down but you do got war — are we to expect the other side agrees to forget what it learned about your troop positioning? Will be fascinating to see if this bit of doublespeak stands up on appeal. Of course the outcome makes perfect sense in the context of the social contract of the internal investigation/government cooperation bargain, and it would have been a very proper and British thing to take the route of acknowledging what was really going on rather than resorting to sophistry.

Why? Because the reason we have the saying “tough cases make bad law” is that bad law has this relentless historical pattern of then being applied to normal cases and upsetting the whole apple cart. There is nothing in the opinion that limits the analysis to cases where the company pulls out the rug from under the SFO. Thus — 100 percent guarantee — if the argument has not already been made it will in coming days be asserted in US shareholder suits that the plaintiffs should get all the records of an underlying UK internal investigation based on ENRC. Instead, this opinion, with its very un-British flawed logic and lack of pragmatism, feels like the latest installment of SFO Director David Green’s (so far successful) push-back against US-style investigation procedures’ infiltration of the UK criminal justice system. We can debate the merits/demerits of that effort another day, but suffice it to say that this opinion increases the risk for companies who want to do the right thing — find out what happened, deal with the consequences and improve controls — of in fact going and doing the right thing.

The Imperfect Solution to the ENRC problem is ... More Lawyers

As to the critical witness interview statements, the court needed to jump through another hoop to get to the result deemed appropriate — which is to position those statements as other-than direct attorney-client interactions. Easier to do under UK than US law because of doctrinal differences over whom company’s counsel can fairly be said to represent/be advising. But herein lies a solution (imperfect for various reasons, but a solution nonetheless) that only a lawyer could love. If the company brings in counsel for the interviewees, and that counsel determined it is in her client’s interest to coordinate with company counsel, the company and its lawyers. File this one under “law of unintended consequences.”

We are still in the puberty period of cross-border enforcement. Ungainly opinions such as ENRC, and let’s see if it survives on appeal, are part of the sorting out process, as is the work that goes on everyday between US and foreign enforcement authorities.