The Court of Appeal has overturned a High Court decision about whether litigation privilege will apply to communications created during internal investigations.

The facts

Eurasian Natural Resources Corp Ltd (ENRC) is part of a multinational group of companies operating in the mining and natural resources sector, including in countries perceived as being high risk in for public sector bribery and corruption.

The Serious Fraud Office (SFO) investigates and prosecutes crimes involving complex fraud, domestic and overseas bribery and corruption. It can require production of any specified documents which appear to relate to an investigation being undertaken by it. However, the person under investigation can refuse to disclose documents which are protected by legal

The two forms of legal professional privilege are:

  • Litigation privilege, which can be claimed over any communication between a client, lawyer and third party where the dominant purpose of the communication is for use in actual, pending or contemplated litigation.
  • Advice privilege which can be claimed over any communication between a client and lawyer where the client seeks, and the lawyer gives, legal advice.

In December 2010, ENRC received an email from a whistle-blower, alleging corruption and financial wrongdoing in connection with its Kazak based operations. ENRC engaged an external law firm to investigate the allegations. The investigation included interviewing 80 employees. Investigations were also commissioned with a firm of forensic accountants.

In August 2011, during the investigation, the SFO contacted ENRC’s counsel about allegations of corruption and wrongdoing by ENRC, and it urged them to self-report. However, it said that it was not conducting a criminal investigation at that stage. After months of meetings and communications between the SFO and ENRC the SFO instituted a criminal investigation, with a view to pursuing a possible prosecution. It issued notices requiring ENRC to produce various documents prepared during the course of ENRC’s internal investigation. ENRC said that these documents were privileged, and would not provide them. The SFO issued a claim against ENRC for various documents. These included the external law firm's interview notes during its investigation and documents presented to ENRC's board containing factual evidence.

The High Court rejected all but one of the ENRC’s claims for privilege, holding that the claims for litigation privileged failed for a variety of reasons, including that i) litigation was not in reasonable contemplation at the time, ii) the initial dialogue with the SFO was not “adversarial” and iii) the documents were not created for the sole or dominant purpose of anticipated litigation. The judge considered that a criminal investigation by the SFO was not “litigation”, but a preliminary step taken prior to a decision to prosecute. The judge also found that legal advice privilege did not apply: in the case of a corporate client, legal advice privilege only attaches to communications between a lawyer and those individuals authorised by the company to obtain the legal advice, but did not extend to other officers or employees of the company. The only documents to which privilege attached were the documents prepared by ENRC’s solicitors for use at the board meetings.

ENRC appealed to the Court of Appeal. It argued criminal proceedings against it were reasonably in contemplation at the relevant time, and to hold that the relevant documents were brought into existence for the dominant purpose of resisting contemplated criminal proceedings.

ENRC also sought clarification on the scope of legal advice privilege, and in particular, in relation to the definition of “client”.

The Court of Appeal held as follows in relation to litigation privilege:

  • ENRC’s appeal was allowed. ENRC was right to say that criminal legal proceedings against ENRC were in reasonable contemplation when it initiated its investigation in April 2011, and certainly by the time it received the SFO’s letter in August 2011. On the basis of the evidence which had been submitted by ENRC, ENRC had anticipated that the SFO could at any point investigate and that this could lead to a criminal investigation.
  • The judge ought to have concluded that the documents were brought into existence for the dominant purpose of resisting or avoiding contemplated criminal proceedings for the following reasons:
    • The fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party does not automatically deprive the preparatory legal work of litigation privilege.
    • Where there is a clear threat of a criminal investigation, even one removed from the specific risks posed by the SFO should it start an investigation, the reason for the investigation of whistle blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation.
    • Although ENRC gave the SFO repeated indications that it would make “full and frank disclosure” and that it would produce its eventual repot to the SFO, it never actually committed to producing its interviews and intermediate work produce to the SFO. That was part of what frustrated the SFO and led to the breakdown of the self-reporting process.
  • The court also held that it is in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists before going to a prosecutor (such as the SFO) without losing the benefit of legal professional privileged for the work produce and consequences of their investigation. Otherwise, companies might be tempted not to investigate for fear of being forced to reveal what had been uncovered.
  • All of the interviews undertaken by the external law firm were covered by litigation privilege. This seems to have been the SFOs’ own understanding, and its own guidelines made clear its expectation that the company’s lawyers would undertake an investigation and would then report to the SFO. The documents relating to the forensic accounting review should be treated the same. It was part of ENRC’s fact finding process at a time when criminal prosecution was in reasonable contemplation, and was also undertaken for the dominant purpose of resisting or avoiding prosecution.

Given the findings in relation to litigation privilege, the court did not need to decide on issues raised in relation to legal advice privilege. However, the court did comment that (following existing case law) communications between an employee of a corporate and the corporation’s lawyers could not be protected by legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client. The court heavily hinted that this existing case law is wrong. It also suggested this was an issue which would benefit from a Supreme Court decision. However, we now know there will be no appeal to the Supreme Court in this case.

What does this mean for employers?

This decision, whilst welcome, is unlikely to have widespread implications in the employment context. Disciplinary and grievance investigations are unlikely to be subject to litigation privilege because their dominant purpose is not for use in actual or contemplated litigation; it's to investigate the disciplinary or grievance issues. Such investigations are also conducted by employers on an “open” basis since they are intended to be seen by employees. The issue of privilege is not relevant to witness notes from these investigations.

However, employers will occasionally instruct solicitors to investigate workplace concerns on a privileged basis, in order to receive legal advice. During such investigations, the lawyers may interview employees and other witnesses. Even following this judgment there is a risk that notes of the interviews will be disclosable in later litigation, and employers and their advisors should be alive to this risk. The key question will be whether litigation privilege applies to such situations. That will be a fact sensitive issue. The courts will examine whether the employer believed litigation was a real possibility at the time of the investigation, including what the employee/ex-employee and their advisors were saying at the time, dates when documents were created, and the terms under which the lawyer was instructed to give the advice.

Unfortunately the law remains that legal advice privilege does not extend beyond communications with the small group of individuals seeking or receiving the advice. It is hoped another case will go through the courts so the Supreme Court can consider this important question.

Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd