Consequences for internal investigations
Are documents which lawyers prepare on the instruction of their clients relating to internal company investigations protected from seizure? The Hamburg District Court addressed this issue in a decision of October 15 2010 (608 Qs 18/10). The decision covered the same ground as an amendment to Section 160a of the Criminal Procedure Code which came into force on February 1 2011. From this date, investigative measures undertaken on lawyers' premises in relation to their clients are not permitted even if the client is not formally considered to be a defendant. The Federal Constitutional Court has confirmed the validity of the legal privilege under Section 160a of the Criminal Procedure Code in a decision of October 12 2011 (2 BvR 236/08, 2 BvR 237/08, 2 BvR 422/08). The legal privilege for internal audit documentation has become a hot topic for the legal profession; it is clearly important when preparing and performing internal investigations, for example those stemming from a suspected cartel or an allegation of corruption.
The decision of the Hamburg District Court arose from a preliminary investigation conducted by the state prosecutor against a bank's board of directors on the grounds of a suspected criminal breach of trust. According to the allegations, the members of the board of directors consented to the financial involvement of the bank which resulted in untenable financial risks for the bank. They were alleged to have caused a loss of hundreds of millions of euros. In order to clarify the details of the financial involvement, the bank, represented by its supervisory board, had engaged a law firm to carry out an internal investigation into possible breaches of duty by the board members. In this context, the firm's lawyers had, guaranteeing confidentiality, held meetings with the accused board members as part of the preliminary investigation and took written statements from them. The outcome of the internal investigation was a legal opinion prepared by the law firm, which was also sent to the Hamburg Public Prosecutor's Office. The law firm rejected the request from the Public Prosecutor's Office to provide it with the minutes of the interviews and any related documents. At the request of the Public Prosecutor's Office, the Hamburg local court ordered the seizure of the minutes, which were stored at the premises of the law firm, as well as files and handwritten notes that were made in order to prepare the minutes. The law firm filed an appeal, which the local court rejected.
The Hamburg District Court dismissed the appeal in its decision of October 15 2010. It held that the conditions for seizure of the minutes had been satisfied. There was also no prohibition on seizure within the meaning of Section 97(1)(3) of the Criminal Procedure Code. Contrary to its wording, Section 96 (1)(3), under which items covered by the legal privilege of individuals named in Sections 53(1)(1)(1) to (3)(b) of the code cannot be used in evidence, is not to be construed narrowly. However, only the relationship of trust between the accused in criminal proceedings and the party with legal privilege should be protected by the prohibition on seizure. Thus, although individual interview partners of the law firm were the accused in the criminal proceedings, they did not benefit from the protection afforded by Section 97(1)(3) of the code because they did not instruct the law firm. No client-like relationship of trust was established between them and the law firm while the legal opinion requested by the bank was being prepared. The purpose of the request made of the law firm was to represent the interests of the bank against the members of the board involved in the financial transaction (ie, the accused) with regard to any compensation or other claims, which is why the mandate was also issued by the supervisory board (Section 112 of the Stock Corporation Act) representing the board of directors. It was the nature of the mandate that the accused did not request advice from the law firm in a position comparable to a principal.
Consequences for internal investigations
The decision of the Hamburg District Court leads to no changes to the previous legal situation for companies seeking advice. The court adhered to the prevailing opinion, not yet confirmed by the Federal Court of Justice, under which lawyers are subject to the prohibition on seizure only if the client was an accused party in criminal proceedings. An extension to the protection of documents which lawyers prepared in internal investigations is covered only in the new version of Section 160a(1) of the Criminal Procedure Code that has now been endorsed by the Federal Constitutional Court. Since then, the seizure of documents on lawyers' premises which lawyers have prepared in the context of company audits in preliminary investigations against companies would probably be not permissible in proceedings against such company.
The new version of Section 160a(1) of the Criminal Procedure Code also results in no changes for individuals who are not involved in the client relationship. They will continue to be excluded from the prohibition on seizure as a matter of principle. The implication for company audits is that seizure is prohibited only if the employees are involved in the client relationship. This favours the employees who are questioned. This is not possible in conflict situations in which the possible errors of the individuals being audited are to be clarified by the lawyer and the individuals are facing possible penalties. This is not the case if the individuals are involved in the mandate as the firm mandating and the audited persons have a joint aim – that is, to review their conduct by mutual agreement and, if necessary, to make adjustments to the legal position. This should be clearly agreed (eg, in connection with an amnesty programme).
In other respects the court's decision on the basis of the then-legal situation is understandable. However, the decision underlines the fact that clarification should be achieved before the audit begins as to who issues the mandate and who is involved in the relationship of trust with the lawyer, to ensure that there is no conflict in this respect.
For further information on this topic please contact Markus Schöner at CMS Hasche Sigle by telephone (+49 40 37 63 00), fax (+49 40 37 63 040 600) or email ([email protected]).