In a decision handed down today and which will be welcomed by the legal community and clients alike, the English Court of Appeal has allowed Eurasian Natural Resources Corporation's (ENRC) appeal against a highly controversial earlier Commercial Court decision that had threatened to significantly narrow the scope of legal professional privilege (LPP).
The background, and Commercial Court decision
In 2013, the Serious Fraud Office (SFO) conducted a criminal investigation into allegations of fraud, bribery, and corruption at ENRC. The SFO demanded that ENRC hand over documents created by its then external lawyers and forensic accountants. ENRC refused to comply on the grounds that the documents were created for the purpose of obtaining evidence and then advice on the SFO investigation and were therefore covered by LPP and consequently protected from disclosure.
The Commercial Court, in the first case to consider the issue of litigation privilege in the context of a criminal investigation, ruled that an investigation by the SFO does not amount to 'adversarial litigation' and viewed it as merely the first stage in assessing whether further steps would be taken and so litigation could not have been in reasonable contemplation.
In addition, the Court held that the dominant purpose for which the documents were created was not for constructing a defence in future proceedings (an essential element), and so even if litigation was in contemplation, they were not covered by the litigation privilege element of LPP.
The Court further found that the other LPP limb known as 'legal advice privilege' would not apply as the majority of the documents demanded by the SFO were not lawyer/client communications, or where they were (as with the evidential presentations), these were not given to the "client" and formed part of ongoing communications.
The Commercial Court ruling resulted in the uncomfortable situation of those involved in a civil investigation (which was largely unaffected by the judgment) having a higher degree of privilege protection than those facing a criminal investigation.
For a detailed analysis of the Commercial Court's decision, please see our previous article here.
The Court of Appeal decision
The Court of Appeal's judgment upheld ENRC's appeal and overturned the Commercial Court's decision that litigation privilege would not apply to documents shared between ENRC and its then legal advisers.
The table below shows how privilege was applied by the Commercial Court and then the Court of Appeal.
Table showing the category of documents and the Commercial Court and Court of Appeal decisions on whether LPP applied to them:
|Category||Description||Commercial Court decision||Court of Appeal decision|
|1||witness interview notes taken by external lawyers||not covered by litigation privilege or legal advice privilege||LPP applies as were created for the dominant purpose of resisting or avoiding the SFO proceedings|
|2||reports generated by external forensic accountants||not covered by litigation privilege||LPP applies, as the dominant purpose test was met.|
|3||presentations by external lawyers for the purpose of advising and receiving instructions from the ENRC internal team||not covered by litigation privilege or legal advice privilege|
|4||Documents including correspondence from an internal ENRC executive who was also a qualified Swiss lawyer. Correspondence reports, and documents from the forensic accountants||not covered by litigation privilege||LPP applies, for all but the internal ENRC emails, as the dominant purpose test was met.|
Why is this case important?
The decision of the Court of Appeal will be welcomed by the legal industry and corporations alike.
Had the Commercial Court's decision been upheld, there would have been widespread uncertainty and dissatisfaction at the fact that corporations could no longer receive advice in relation to internal and regulatory investigations safe in the knowledge that such advice would be legally privileged. The Court of Appeal's judgment instead confirms that corporations are able and are in fact encouraged to carry out internal investigations, which it sees as being in the public interest, in the knowledge that (subject to the requirements set out in the judgment), documents produced as a result of those investigations will be protected from disclosure.
The judgment supports a culture of corporations self-reporting and investigating issues of malpractice, both of which encourage a system of corporate governance, which ultimately benefits society as a whole, and confirms the SFO's remedy "is not to allow prevarication and delay .....to prevent a timeous investigation..."
This case attracted the interest and concern of all in the industry- as seen by the Law Society intervening. This ruling firmly recognises that the ability of a client to consult with and obtain advice from its lawyers safe in the knowledge that those communications will not be disclosed is a fundamental principle of our justice system, and so it is with a sense of relief that this judgment is received.
Having decided the matter on the basis of litigation privilege, the Court of Appeal did not feel it necessary to determine the question of legal advice privilege, but says in obiter how it might have determined the question if needed -namely, that it would have felt bound to follow the principle set out in Three Rivers (No.5)2 and in so doing decided that correspondence between an employee of the corporation and the corporation's lawyers would only be privileged if that employee was responsible for taking legal advice and giving lawyers instructions - that is part of the defined and narrow "client" group.
The Court of Appeal further goes on to say that in these circumstances Three Rivers (No.5) would have been wrong. The reasoning being that the notion of a small number of employees being involved in litigation was formed when corporations were far smaller than the global modern entities we now see, and puts these larger entities at a significant disadvantage when compared on this point to their smaller relations.
The Court of Appeal has given a strong indication that it sees a need for the Supreme Court to review Three Rivers (No.5) commenting that "it would be highly undesirable for [them] to enter into an unseemly disagreement [on the principle] which can be overturned only by the Supreme Court"
Practical considerations when faced with internal investigations
The decision will be of enormous comfort to organisations across all industries. Nonetheless, if you are involved in internal investigations our advice would be to consider carefully whether a regulator may be interested in your findings and to adopt the following measures:
- Contact external legal advisors early. Not only can we help with the investigation itself, but we can also provide advice on how to try to protect privilege from the outset.
- If reports do need to be drafted, ensure they are written by external counsel and are only shared with the core investigations team - it should not be forgotten that once confidentiality is lost, so is privilege.
The Court of Appeal has not granted permission to appeal at this stage, and therefore it remains to be seen whether the SFO will seek leave to appeal to the Supreme Court.
The ENRC v SFO judgment is available at this link