In a recent judgment concerning an investigation by the UK Serious Fraud Office ("SFO") into alleged corruption in mining companies in Kazakhstan and Africa owned by the Eurasian Natural Resources Corporation Ltd ("ENRC"), the English High Court made potentially very significant findings on the scope and extent of legal professional privilege (which includes legal advice privilege and litigation privilege) in the context of regulatory investigations and more generally1.
It is unclear whether this decision (which is under appeal) will be followed by the Irish courts, which have not ruled on this specific issue in the past. Recent Irish cases do appear to reflect a more pro-active approach by certain regulators as regards the seizure of documents, however; and parties subject to, or potentially subject to a regulatory investigation need to be more careful than ever about the scope and conduct of any internal investigations and who they appoint to conduct them.
In the absence of a conflicting Irish authority, if this decision is followed by the Irish courts then this would amount to a radical re-definition of what is currently understood to be the scope of the privilege in this jurisdiction.
In particular, given the restriction on the scope of litigation privilege, it is now more important than ever that parties establish and implement clearly defined frameworks to maximise the possibility of being able to assert legal professional privilege where appropriate.
The case relates to an ongoing criminal investigation into allegations of corruption in subsidiaries of ENRC. On being notified of this by a whistleblower in December 2010, ENRC appointed lawyers (Dechert) to investigate the allegations on its behalf, which included taking multiple witness statements and compiling reports, as well as internal discussions between ENRC and its lawyers as to the possibility of a criminal investigation and/or a "dawn raid" by the SFO about the allegations.
In August 2011 ENRC was invited by the SFO to and duly agreed to engage in a SRO Self-Reporting Mechanism (which required openness and transparency by ENRC) with the possibility of a lesser civil or criminal sanction for any offence found to be committed. Both the investigation and the SFO self-reporting mechanism proceeded until March 2013, when ENRC made a report to the SFO on the allegations, and the SFO initiated a formal criminal investigation.
As part of the investigation, the SFO sought to compel the provision of certain documentation which was resisted by ENRC on the basis that the material was privileged, having been created on its behalf by its lawyers and accountants in the context of the allegations. The SFO applied to the High Court for a declaration that the documentation was not privileged.
ENRC claimed legal professional privilege (either legal advice privilege or litigation privilege as appropriate) over the disputed documentation which fell into four categories:
(a) Notes taken by ENRC’s lawyers of interviews with individuals in respect of the matters being investigated;
(b) Materials created by forensic accountants as part of a “books and records” review carried out on behalf of ENRC prompted by the allegations of corruption;
(c) Documents indicating factual evidence presented by ENRC’s lawyers responsible for the investigation to the ENRC Board in March 2013 and based on which legal advice was provided; and
(d) Documents relating to the forensic accountants’ "books and records" review referred to in a letter to the SFO from ENRC’s lawyers in 2014, and advice provided by the Head of Mergers and Acquisitions in ENRC (a Swiss qualified lawyer) to an ENRC senior executive.
The High Court noted that legal professional privilege was a fundamental human right, guaranteed by the common law, central to the administration of justice and which could not be negated by any rule of public policy. It noted that whether a document was, in fact, privileged was for the court to determine in light of the evidence taken as a whole and re-iterated the burden of establishing that a document was privileged lay with the party asserting the privilege.
The court found that the majority of the documentation was not privileged in this instance. In doing so, the court held the following in relation to privilege:
- Litigation privilege did not extend to documents created for the intended purpose of avoiding the contemplated or apprehended litigation;
- Litigation privilege does not apply to documents created for the purpose of showing them to a potential adversary;
- A reasonable contemplation of a criminal investigation did not equate to a reasonable contemplation of a criminal prosecution, by reference to the high standard of proof required before a criminal prosecution can issue, and the question of whether the person claiming litigation privilege actually considers a criminal prosecution likely is a matter of fact;
- In this case, as ENRC did not appear at any relevant time to have any knowledge of matters which would make a prosecution likely, the judge ruled that the dominant purpose of reasonably apprehended litigation was not met; and
- As ENRC was, by its own admission, engaged in a self-reporting process with the SFO from August 2011, the fruits of Dechert’s investigations were presumed by the court to be intended to be provided to the SFO as part of that process, and could not therefore be subject to litigation privilege.
Legal Advice Privilege
- Communications which are not subject to legal advice privilege (as between the client and third party advisors) cannot be made privileged by interposing a lawyer in the chain of communication;
- Legal advice privilege will only attach to communications between the lawyers and those individuals in the corporation who are authorised to obtain legal advice on the corporation’s behalf. Other communications with employees of the corporation, no matter how senior, and even in respect of the matters on which advice is being sought, will not be privileged;
- The court appeared to endorse the conclusions of Hildyard J in The RBS Rights Issue Litigation2 that only the individuals singly or jointly representing the directing mind and will of the corporation should be treated as the client for the purposes of legal advice privilege;
- Notes taken by lawyers of evidence of prospective witnesses are not themselves privileged even where the information is being gathered for the purpose of advising the client and should be disclosed, unless to do would betray the trend of the legal advice provided. The court expressly rejected the submission that the very selection of the evidence proffered which the notes would reflect would betray the trend of the advice to be given;
- The fact that another firm (Addleshaw Goddard) had also been retained to provide legal advice to ENRC from July 2012 in respect of the investigation was cited as a basis for finding that legal advice privilege did not apply to Dechert’s investigations; and
- Advice to an ENRC executive from the Head of Mergers and Acquisitions, who, while a Swiss qualified lawyer, was not retained as an in-house lawyer, was held not to be privileged, even though the court accepted that legal advice was being provided by him in this context (to his knowledge). The court noted that had ENRC wished to get privileged in-house legal advice, it should have sought it from ENRC’s general counsel.
As indicated, it remains to be seen whether this decision (which is under appeal) is followed by the Irish courts. The previous seminal decision in respect of the extent of privilege in this context, that of the House of Lords in Three Rivers District Council v Governor and Company of the Bank of England3 stated that litigation privilege would only apply where the litigation being apprehended was adversarial rather than investigative or inquisitorial.
While Three Rivers was cited with approval, this specific distinction was not upheld in Ahern v His Honour Judge Alan Mahon & Others4 where a divisional court of the Irish High Court held that a witness before a Tribunal of Inquiry whose conduct was being scrutinised by that tribunal was entitled to assert litigation privilege over relevant documentation, notwithstanding the fact that the Tribunal was not strictly administering justice, by reference to Constitutional rights to fair procedure, which do not have direct equivalents under English law. It is unclear whether the same protection would be afforded to a corporate entity in the context of a regulatory investigation.
This caveat aside, if followed, the judgment would be deeply problematic for any regulated entity seeking to, of its own accord, investigate concerns about possible unlawful activity in advance of an actual criminal prosecution being mooted without having to disclose the outcome of those investigations. The manner in which corporate regulated entities interact with their lawyers in seeking legal advice in a more general sense may also be gravely impacted.
The extent of the changes heralded by the judgment mean there are no easy answers as to how the risks in question can be comprehensively managed, but the following are certain steps which regulated entities may consider taking, in this regard, if this line of authority is followed in Ireland;
- Where legal advice is being sought, regulated entities should consider either routing all relevant correspondence through a designated point of contact, or alternatively, formally delegating the power to take advice to particular individuals in advance of advice being sought;
- Where issues of concern arise which give rise to a potential claim of litigation privilege, detailed consideration as to the status and basis of that concern, and to the dominant purpose behind the creation of the documentation as a result, should be recorded in explicit terms. Although such evidence will not be determinative, it was the absence of such evidence that proved fatal to ENRC’s claims to litigation privilege in many instances;
- Where engaging in a consensual and facilitative process with any regulator, regulated entities need to carefully consider the impact this engagement may have on any claim of privilege they may wish to assert if agreement cannot be reached as part of that engagement;
- Where regulated entities instruct their lawyers to carry out investigations on their behalf, the fruits of these investigations may not be privileged unless reflective of the thinking of the lawyer retained or legal advice given. Consideration should be given, where possible, to ensuring that such documentation contains or reflects elements of legal advice (or legal consideration) to enable the privilege to be claimed;
- Although the traditional position has been that a party was entitled to obtain privileged legal advice from more than one lawyer or from anyone holding themselves out as a lawyer to them, the court finding in respect of the multiplicity of sources of legal advice, both internally and externally, suggests that regulated entities may need to be judicious if seeking advice from multiple sources in the future; and
- No claim of legal advice privilege will likely be successful unless qualified lawyers are engaged to provide legal advice, and attempts to extend the scope of the privilege to include other third parties will more than likely not succeed.
The extent to which legal professional privilege can be claimed in criminal investigations and prosecutions (or indeed at all) has received little judicial scrutiny in Ireland in the past, although recent challenges to the power of regulators to seize documents have been recently determined by the Supreme Court in CRH & anor v CPCC5 . The latter case in particular, while limiting the statutory power of a regulator to seize documents, is not thought to be of general application and does not address the scope of any privilege which may be claimed. In the current climate of enhanced regulatory enforcement, it remains to be seen whether Irish regulators adopt and rely upon the principles underlying the ENRC decision, and whether any such reliance is endorsed by the Courts.
As a result of the lack of recent authority, entities may have proceeded on the basis that a claim of privilege in the context of regulatory enforcement would not be substantively analysed or challenged in the manner which occurred here, and that claims for litigation privilege and/or legal advice privilege could effectively be advanced as alternatives in a scenario such as this. As this decision shows, greater care needs to be taken at an early stage to ensure that a robust claim for privilege can be made if necessary, and that entities’ constitutional rights to fair procedures are protected if not. The inherent risk is that if a different standard of privilege is applied retrospectively, parties run the risk of being compelled to show their hand to regulators in a manner not originally contemplated.