The High Court has held that certain documents created by legal and other advisers of Eurasian National Resources Ltd (“ENRC”) during an internal investigation into allegations of wrongdoing, are not protected by legal professional privilege. The documents, which were largely created during a period of dialogue and cooperation with the Serious Fraud Office (“SFO”) as part of its self-reporting regime, must therefore be disclosed to the SFO. The judgment is a further blow to the assertion that privilege should apply in such cases and will have significant implications for internal investigations and the SFO’s self-reporting regime.
Between 2011 and 2013, ENRC and an external law firm conducted an internal investigation into allegations of fraud, bribery and corruption involving ENRC’s operations in Kazakhstan and Africa. It disclosed a final report on the Kazakhstan investigation to the SFO in February 2013, but not the underlying interviews or other work product. In 2013, the SFO opened a criminal investigation and requested disclosure of documents (including lawyers’ work product), which ENRC sought to resist on the grounds of litigation and legal advice privilege.
On 8 May 2017, Mrs Justice Andrews rejected ENRC’s claim to privilege in relation to interview notes and to work product by forensic accountants assessing ENRC’s internal controls. However, she upheld the claim in relation to a presentation to the Board on the investigation findings, which also involved the giving of legal advice. The judgment, which considers the leading cases of Three Rivers (No. 5) and The RBS Rights Issue Litigation, restricts the scope of legal advice privilege over documents created by lawyers during an internal investigation and confirms that the ambit of litigation privilege (not considered in Three Rivers (No. 5) or RBS) is strictly confined (particularly in criminal proceedings). ENRC intends to appeal.
Key points from the judgment are:
- The evidence to support a claim of privilege should demonstrate the contemporaneous analysis of why privilege was thought to apply, with that evidence coming from the client representative responsible for instructing the lawyers.
- The basis of litigation privilege is contemplation of adversarial proceedings; the likelihood of a criminal investigation is not sufficient unless the facts also indicate that a criminal prosecution is reasonably contemplated.
- The threshold for criminal proceedings being reasonably contemplated is higher than for civil proceedings, as there is a threshold test for a criminal prosecution.
- Documents created during an internal investigation to assess whether there is substance to an allegation, or with the purpose of avoiding an external investigation or prosecution, cannot have been created with the dominant purpose of defending a prosecution and so cannot be covered by litigation privilege.
- Litigation privilege also cannot apply to documents created for the specific purpose of showing them to the SFO as part of any agreed cooperation or self-reporting exercise.
Legal advice privilege
- Where legal advisers are instructed in a purely investigatory, ‘fact-finding’, role, their work product will not be privileged as it does not involve legal advice. For example, a mere record of an interview would not be protected.
- Documents prepared with the purpose of giving legal advice will be privileged, even though they contain reference to factual information or findings that would not otherwise be privileged.
Who is the client?
- Employees authorised to speak to lawyers for the purpose of a fact-finding investigation do not constitute the “client” for the purpose of legal advice privilege. Only communications with individuals authorised by the client to seek or obtain legal advice will potentially be covered by the privilege.
So what should businesses now do as a result of this judgment when conducting a fact-finding investigation into whether they may have a liability risk? Steps may include the following:
- Identify and possibly record in writing who will be responsible for seeking/obtaining legal advice and for what purpose. This will assist in a later claim to privilege by identifying “the client” and the reason for seeking the lawyers’ work.
- Consider why the lawyers (internal and/or external) are being instructed and what privilege may be relevant in that context, if any. If only certain elements of the work are likely to be privileged, consider delineating them separately.
- Consider carefully the approach to interviewing individuals and what record will be taken of such interviews (if any) and by whom.
- If a record will be taken, consider whether it should be a verbatim or similar note of the interview (which is unlikely to be privileged unless litigation privilege applies) or can be recorded as part of a wider note of advice in which the record and the advice cannot be easily separated.
- Consistently repeat the process of considering what privilege may apply as the work/matter develops and whether at any given stage the privilege claim may have evolved (e.g. because of facts learned). Record any changes of view and why it has changed.
- Where those involved in seeking/obtaining the advice are due to leave the company, consider obtaining a statement from them before they do so that records their understanding and assessment of the privilege available in respect of the work product. (ENRC’s claim to privilege was hampered by their inability to persuade ex-employees to give relevant witness statements.
ENRC is part of a multinational group of companies operating in the mining and natural resources sector. In 2011, having received a whistleblower report, the company instructed solicitors to investigate allegations of corruption and financial wrongdoing in relation to its operations in Kazakhstan and Africa. The company also instructed Forensic Risk Alliance (“FRA”) (forensic accountants) to conduct a review to identify any systems and controls weaknesses and potential improvements.
Prompted by press reports, the SFO contacted ENRC in August 2011, inviting ENRC to cooperate as part of its self-reporting regime. ENRC took up the offer and held over 30 meetings and discussions with the SFO as ENRC continued its investigation. In February 2013, ENRC sent an investigation report to the SFO and shortly afterwards replaced the legal advisers who had been liaising with the SFO. In April 2013, the SFO opened a criminal investigation of ENRC, which is ongoing.
The privilege issue
As part of its investigation, the SFO issued notices to ENRC to compel the production of documents, using its powers under s.2(3) of the Criminal Justice Act 1987. The powers do not extend to documents covered by legal professional privilege (s.2(9)) and ENRC sought to resist disclosure on that basis. The SFO applied for a declaration that the documents were not covered by privilege. There were four categories of documents at issue:
- external lawyers’ interview notes made between August 2011 – March 2013 (litigation and legal advice privilege claimed);
- FRA materials created as part of the reviews they carried out (litigation privilege claimed);
- documents indicating or containing the factual evidence presented by external lawyers to ENRC’s Corporate Governance Committee (legal advice and litigation privilege claimed);
- documents referred to in a letter sent to the SFO, comprising (i) FRA-related documents and (ii) email communications between a senior ENRC executive and ENRC’s Head of Mergers and Acquisitions (a qualified Swiss lawyer) (litigation and legal advice privilege claimed).
Privilege – a recap
Litigation privilege attaches to confidential communications made with the dominant purpose of obtaining or receiving advice in connection with adversarial proceedings that are reasonably in prospect.
Legal advice privilege attaches to confidential communications between a lawyer and a client for the purposes of seeking or receiving legal advice (including advice as to what should be prudently and sensibly be done in the relevant legal context).
What evidence is required and from whom
Mrs Justice Andrews noted that the evidence required to support a privilege claim should:
- indicate the deponent’s analysis of the documents and the purpose for which they were created, ideally by reference to contemporaneous material that supports the claim; and
- normally come from those responsible for instructing the lawyers on the company’s behalf, as it is “only the person… responsible for the coming into existence of the document… who could explain, for example, why they contemplated litigation, or why they were seeking legal advice”.
She noted that she had not been taken “to any record of discussions either at Board level or within any group within ENRC which was responsible for giving instructions to the lawyers and forensic accountants, which might have shed light on what ENRC contemplated, and why, in the key period”.
The claim for litigation privilege
The key issues were: (1) whether criminal proceedings were “reasonably in contemplation” at the time the documents were created; and (2) whether the documents were created with the “dominant purpose” of being deployed in, or obtaining legal advice in relation to, the conduct of those proceedings.
ENRC’s claim to litigation privilege fell at the first hurdle. While the test is objective, where litigation was not pending or threatened the court will consider the state of mind of the party claiming privilege to assess whether litigation was “in reasonable prospect” at the time the documents were created.
The chronology indicated that ENRC’s initial focus was on regulatory matters (e.g. improving their dawn raid procedures) and then on conducting its investigation and engaging with the SFO as part of the self-reporting process. There was no contemporaneous evidence that anyone at ENRC feared that its investigations would uncover evidence that could come near the threshold for a prosecution. While it was possible that the investigation might turn up evidence which, if it came to the SFO’s attention, might result in criminal proceedings, the investigation had not done so. A “prosecution only becomes a real prospect once it is discovered that there is some truth in the accusations, or at the very least that there is some material to support the allegations of corrupt practices”. Therefore, “criminal proceedings were not even a ‘distinct possibility’, let alone a real prospect”.
The court also emphasised the difference between contemplation of an investigation and contemplation of a prosecution; criminal investigation by the SFO is not adversarial litigation, but rather a preliminary step towards it which, if the evidential and public interest tests are met, may become a prosecution.
The court’s analysis highlights the key difference between civil and criminal proceedings in the context of litigation privilege. The court noted that civil proceedings may be commenced with very little legal foundation and can therefore be in “reasonable contemplation” at an early stage, whereas criminal proceedings are necessarily subject to a higher threshold: they “cannot be reasonably contemplated until the prospective defendant knows enough about what the investigation is likely to unearth … to appreciate that it is realistic to expect a prosecutor to be satisfied that it has enough material to stand a good chance of securing a conviction”.
This is a very significant conclusion and suggests that the ability to rely on litigation privilege in a criminal context may be more limited than for contemplated civil claims. In ENRC’s case, while the prosecutor only had an unverified allegation, proceedings could not reasonably have been in contemplation by ENRC and privilege could not attach.
In any event, the court found that none of the documents had been created with the dominant purpose of deploying them in a prosecution or obtaining legal advice relating to its conduct. ENRC’s focus had been on improving its compliance programme (the category two and category four documents), investigating the allegations to see if there was any truth in them and trying to avoid an SFO investigation or prosecution (the category one and three documents). None of those objectives can be equated to defending a prosecution. In fact, some of the lawyers’ work product was created for the specific purpose of showing it to the SFO as part of the agreed cooperation. Litigation privilege cannot apply where “a document is created with the express purpose of showing it to the prospective adversary, or with the intention or understanding that it will be shown to him”, although it may be deemed to be without prejudice.
Had the dominant purpose been to obtain advice about the defence of anticipated criminal proceedings, the Judge would have expected there to have been internal documentation indicating that that was the purpose; no such documents were shown to her.
ENRC’s claim to litigation privilege therefore failed in respect of all categories of the documents.
The claim for legal advice privilege
The category one interview notes raised similar issues to those addressed by the Court of Appeal and High Court in Three Rivers (No. 5) and RBS respectively: (1) who the client is for the purposes of the privilege claim; and (2) what protection is given to lawyers’ work product.
Who is the client? The court held that a solicitor’s communications with any employees of the client company are not covered by legal advice privilege. Only communications with individuals tasked or authorised by the client to seek or obtain the legal advice on the client’s behalf will potentially be covered by privilege. The court noted that the “client” in this context may include in-house lawyers tasked with giving instructions to lawyers as well as others, such as the Board or sub-committees of the Board who want to receive the advice.
The Judge considered it would be “wholly artificial” to treat employees as “instructing” the solicitor where they are simply contacted for the purposes of a fact-finding investigation, even if authorised to speak to the lawyers for that purpose. In this way, there was no distinction between facts communicated to a solicitor by an employee for the purpose of the solicitor providing legal advice, and facts communicated by someone outside the company.
Lawyers’ working papers
The court held that lawyers’ working papers would only be protected by legal advice privilege if they “betray the tenor of the legal advice”. For example, a note recording the substance of a telephone conversation would not attract privilege, but a note recording the note-taker’s thoughts and comments on the conversation could. In RBS, it was held the notes must show something substantial of the lawyers’ analysis of the documents. As the Judge noted, “the client cannot obtain protection of legal advice privilege over interview notes that would not be privileged if he interviewed the witness himself, or got a third party to do so, simply because he procured his lawyer to interview the witness instead”.
Application to ENRC
Mrs Justice Andrews held that there was no evidence that any of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC. The interview notes were therefore not communications conveying instructions. If the purpose of preparing the notes was to obtain legal advice, they were working papers for that purpose and were not privileged – they did not “betray the tenor” or “give a clue” as to the legal advice of those lawyers. As in RBS, there was nothing substantial of ENRC’s legal team’s analysis in the notes. Accordingly, no privilege attached to them.
There was also no privilege in the category four emails between the ENRC executive and its Head of M&A, based on a strict application of the requirement that privilege only attaches to communications between a client and his legal adviser acting in that capacity, even if legal advice was being sought and given. At the relevant time, the Head of M&A was not employed as a legal adviser to ENRC (even though he previously had been and subsequently became General Counsel again). He was simply a “man of business”.
The only documents where ENRC’s claim to privilege was successful were the category three documents containing evidence presented to ENRC’s Corporate Governance Committee by its external legal advisers, including a powerpoint presentation of its investigation findings. The court held these were “plainly privileged” because the lawyers had been instructed to give legal advice about certain matters consequential on their findings and the documents had been prepared with the purpose of giving that advice, even though they contained reference to factual information that would not otherwise be privileged. They were therefore “part and parcel of the continuum of confidential communications between lawyer and client whose purpose is the giving or receiving of legal advice”.
The court therefore ordered that only the category three documents could be withheld from the SFO. This decision will be alarming for companies who have previously conducted or intend to conduct internal investigations into sensitive matters. It indicates that documents created by lawyers during an investigation (as opposed to advising on the effect of the findings) will not be privileged, even though the fact-gathering is a necessary precursor to giving the advice.
Concerns over losing the protection of privilege could have a chilling effect on the willingness of companies to conduct such investigations, or to investigate such allegations with the same thoroughness or scrutiny that they might otherwise have done. It raises further questions as to whether notes can safely be taken of interviews conducted prior to proceedings being reasonably in contemplation. Without such notes, lawyers may be hampered in preparing thorough advice; yet the notes themselves may prove a hostage to fortune. It leaves corporates in a difficult position balancing one risk against the other.
Nevertheless, the decision could encourage corporates to self-report at an early stage and rely on the potential advantages that co-operation with the SFO confers, on the basis that there is no countervailing benefit of retaining privilege over documents created whilst the investigation is kept ‘in-house’.
However, it needs to be borne in mind that each case turns on its own facts. The facts in this particular case were unusual. Certain factors mentioned in the judgment could potentially be used by corporates to distinguish their own claims to privilege from this case.
- Evidence to support a privilege claim: A “serious problem” for ENRC was that they did not have evidence from the individuals responsible for instructing the lawyers, whom the company contended reasonably contemplated proceedings. Not all corporates will face this hurdle, particularly if they ensure that their discussions and analysis of the likelihood of litigation or prosecution are well-documented from the relevant time that they are contemplated.
- When interview notes could be privileged: The judgment gives some indication of what would be required to turn interview notes into papers that could attract legal advice privilege. This may be arguable where the notes include the lawyer’s qualitative assessment of the evidence, thoughts about its importance/relevance to the inquiry, or (possibly) indications as to further areas of investigation that may be warranted (although this last point alone would not be sufficient).
- Timing and good faith: Almost all of the disputed documents were created after, and as part of, ENRC agreeing to cooperate and be transparent with the SFO. It was only in December 2012 that ENRC’s lawyers first raised the issue of their report being privileged. Asserting privilege at that late stage was considered entirely inconsistent with ENRC’s previous approach. They could potentially have asserted privilege in advance and sought to agree a limited waiver.
- Role of adviser: Almost all of the disputed documents were created either by non-lawyers (FRA) such that legal advice privilege could never apply, or by lawyers specifically instructed to conduct a fact-gathering exercise, with separate lawyers instructed to advise on the outcome of that exercise. Had the investigating lawyers also been retained as the legal advisers on the findings, the analysis may have been different. (In fact, the court accepted that they did give some legal advice at times – hence the category three documents being protected.)
- Expectation of a likely prosecution/claim: When the claim to privilege was said first to arise, ENRC had no idea whether the allegations had any substance or what their implications may be. Therefore, there was no prospect of succeeding in a claim that a prosecution was contemplated at that time and no evidence was ever presented to the court that suggested that the analysis of the risk of prosecution ever altered or was specifically considered. In another case, the facts may justify a different outcome.
Regardless of the consistency with the reasoning of Three Rivers (No. 5) and RBS, the judgment has one uncomfortable implication. The decision indicates that it is harder to claim litigation privilege in the criminal context than in a civil one because the commencement of proceedings requires a high threshold test to be met that does not exist in civil cases. This has the counter-intuitive effect of making the success of claims to litigation privilege in the criminal context largely subject to the existence and strength of evidence that would enable a prosecution to be commenced.