Legal professional privilege is a doctrine of fundamental importance to both lawyers and their clients, allowing certain documents and communications to be withheld from production to third parties and to the court.

And for a simple reason; clients need to be able to seek confidential legal advice, and/or take investigatory steps with a view to litigation, without the fear that that the advice, or the basis for it, will be disclosed.

Court of Appeal ruling

Last week, a significant ruling by the Court of Appeal in Director of the Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation (ENRC)[1] overturned key factual findings relied upon in the High Court’s earlier decision to deny privilege in respect of certain documents and notes created or collected by the Defendant’s solicitors in the course of their investigation of concerns raised by a whistleblower.

In the High Court, Andrews J had found that the material had been created at a time where ‘criminal proceedings were not even a distinct possibility, let alone a real prospect’. She noted that ‘A fear of prosecution on a worst case scenario was not good enough’ to give rise to litigation privilege.

The High Court decision had caused considerable disquiet and saw the Law Society participating in the Court of Appeal as an intervener. Companies feared that communications with lawyers in connection with internal investigations would have to be disclosed to prosecutors. However, the decision from the Court of Appeal provides welcome reassurance to companies and organisations in respect of material gathered during internal investigations which they conduct internal investigations which they conduct to ascertain whether, and to what extent, there has been regulatory non-compliance.

The outcome in the Court of Appeal was different to that in the High Court primarily because the court reached different factual conclusions. However, as an illustration of the application of the relevant test for litigation privilege, the Court of Appeal’s approach reflects an application which is more generous to the person asserting privilege.

When are legal proceedings ‘in contemplation’?

The Court of Appeal found that a criminal prosecution was in the reasonable contemplation of the ENRC when the SFO, a prosecuting authority, specifically made the prospect of prosecution clear to them, over and above drawing the ENRC’s attention to general principles and guidance.

Rejecting Andrews J’s suggested general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken, the Court of Appeal observed:

‘it would be wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitor to investigate the circumstances of any alleged offence.’

Addressing the status of preparatory work on documents drafted with a view to disclosure to the other side in litigation the Court noted that the ultimate intention of showing a document to the opposing party ‘does not…automatically deprive that preparatory legal work …of litigation privilege.’ They continued:

‘In both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings.’

Significantly, the Court approached the matter on the basis that internal investigations undertaken in the context of compliance with a regulatory regime may have as their dominant purpose the avoidance of, or defence of, litigation in the form of enforcement proceedings.

Addressing the ‘dominant purpose’ test which is engaged in the assessment of claims to privilege over documents the Court of Appeal noted:

‘Although a reputable company will wish to ensure high ethical standards in the conduct of its business for its own sake, it is undeniable that the ‘stick’ used to enforce appropriate standards is the criminal law and, in some measure, the civil law also. Thus, where there is a clear threat of a criminal investigation, even at one remove 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.’

The use of the qualifier (‘may be’) demonstrates that the Court was not enunciating a new test. Each case will have to be considered on its own facts. However, the Court’s assessment is one which many will view as more realistic that that applied in the High Court. It is an approach which is more reflective of the likely expectations of companies conducting internal compliance investigations.

Whilst the Court’s approach to the issue of litigation privilege is likely to be broadly welcomed, the Court’s comments on the extent to which legal advice privilege applies to communications between a client’s agent/employee and the client’s solicitors suggest that this may not be the end of the road. Noting that they were bound by the decision in Three Rivers (No.5) the Court nonetheless made it plain that they would have been in favour of departing from it.

Whilst the Court’s approach to litigation privilege softens the impact of the Three Rivers (No.5) decision there will be many will be eager for that decision to be revisited by the Supreme Court.

You can read the full judgment by clicking here.