Elaina Bailes and Oliver Ingham of our Commercial Litigation team report from the Court of Appeal on the hearing of the appeal of the High Court decision in SFO v ENRC in relation to privilege. In particular, they focus on the public policy concerns regarding the law of privilege and the comments from the judges hearing the case.
One of the hottest events in the legal summer season took place a couple of weeks ago. Queues to get into the venue had to be carefully marshalled, the press were on hand to report in earnest and it featured a celebrity (barrister) line up. Yet this wasn’t a plush awards ceremony or a raucous chambers party, but the much anticipated Court of Appeal hearing of the appeal of the High Court decision in Serious Fraud Office v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (QB) .
The appeal took place against a background of a recent flurry of decisions regarding the law on privilege. These have attracted debate within the legal profession as to whether the scope of both legal advice privilege and litigation privilege is being eroded, (particularly in the context of criminal investigations), and, a result, breaching parties’ fundamental rights.
The decision in SFO v ENRC at first instance raised eyebrows on the basis that it was seen to be limiting the application of litigation privilege in criminal investigations to a late stage in factual investigations. This would leave clients who became aware of a criminal allegation against them with a dilemma. How could they properly investigate the facts to establish whether there was any grain of truth in the allegation, and engage with the self-reporting regimes of regulators and enforcement agencies without creating documents that they would ultimately be forced to hand over to a prosecuting body? Such was the concern within the legal profession that the Law Society was granted permission to intervene in the appeal, with its president, Joe Egan, stating: “If the ruling is upheld, it potentially has the perverse effect of discouraging firms from self-reporting for fear of the consequences.”
Controversy at first instance
The factual background to the SFO v ENRC case is as follows. ENRC instructed lawyers to carry out a fact-finding exercise after it was contacted in December 2010 by a whistleblower alleging bribery and financial wrongdoing in relation to an overseas subsidiary. In 2011, the SFO alerted ENRC to its self-reporting guidelines and proposed a meeting. After a period of discussions between the parties, during which ENRC provided updates on the internal investigation, the SFO announced in April 2013 that it was commencing a criminal investigation. ENRC refused to produce certain categories of documents produced in the course of the internal investigation on the grounds of legal advice and litigation privilege.
To establish litigation privilege, which applies to communications between clients/lawyers and third parties that have been produced for the dominant purpose of obtaining advice/evidence/information in relation to litigation, a party must show that:
- Litigation was “reasonably in prospect”, and
- The contemplated real likelihood of litigation must be the sole or dominant purpose of the communications.
At first instance, Mrs Justice Andrews found in criminal cases it is only at the stage where a prosecution is brought against a defendant that it can be considered that litigation is in reasonable contemplation. “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,” she said.
The court noted that one of the critical differences between civil and criminal litigation is that civil litigation can be brought on the basis of unfounded claims, whereas criminal litigation cannot.
Mrs Justice Andrews found that the main purpose of the internal ENRC investigation was to establish if there was any truth to the whistleblower allegations, and to prepare for any future SFO investigation. ENRC therefore could not establish that litigation was in reasonable contemplation at the time in their investigation when the documents in question were created. Further, the evidence clearly suggested that ENRC intended to show the documents to the SFO, meaning that litigation privilege cannot apply. Mrs Justice Andrews also rejected the argument that the purpose of “avoiding litigation” was sufficient for the purposes of litigation privilege.
In relation to legal advice privilege, which applies to confidential communications between a client and its lawyers in connection with the provision of legal advice, Mrs Justice Andrews followed the approach taken by the High Court in the RBS Rights Issue Litigation  EWHC 3161 (Ch). That decision reiterated that where the client is an organisation (whether a corporate body or not), privilege only attaches to individuals within that organisation who are authorised to obtain legal advice on that entity’s behalf. Consequently, she held legal advice privilege does not apply to factual interview notes of employee interviews.
The appeal – key arguments
Dominant purpose and litigation in contemplation
ENRC argued that:
- The internal investigation was a fact-finding exercise to gauge ENRC’s exposure and reduce the risk of criminal investigation/prosecution. The prompt instruction of a white collar crime specialist with close ties to the SFO supports the idea that the investigation was being conducted with potential litigation in mind and that the dominant purpose of the investigation was to reduce the risk of prosecution.
- ENRC had anticipated investigation and prosecution by the SFO. They knew that the internal investigation may lead to criminal proceedings and, therefore, civil and criminal litigation was in reasonable contemplation. They knew that there was a real risk of regulatory intervention, including criminal prosecution, and the investigation confirmed the fear of the real risk of prosecution. Establishing the truth of the whistleblower’s allegations was a part of this. ENRC claimed that contemplating litigation for settlement and avoiding prosecution should not be thought of as distinct from one another, the fact-finding investigation was for both purposes.
The SFO, in response, argued that:
- The documents in question were created for the specific purpose of having a dialogue with the SFO and that the purpose of the investigation was to aid in providing full and frank disclosure to the SFO. It follows that no privilege applies at all.
- Information prepared for the purpose of avoiding litigation/prosecution is not protected by litigation privilege and that, in fact, ENRC was preparing the documents for disclosure to the SFO. Initiation of an investigation and self-reporting are not litigation.
Three Rivers (No 5) and the definition of “client” for the purposes of privilege
ENRC and the Law Society argued that there is currently “dismay” in the legal profession due to the wide interpretation of Three Rivers (No 5) in The RBS Rights Litigation and in the first instance ENRC decision.
Counsel for the Law Society made the following observations:
- There was concern that Mrs Justice Andrews had taken her decision too widely and that it should have been based on the facts.
- Three Rivers (No 5) was extremely fact specific and its application should be limited to cases with similar facts, i.e. where the entity concerned is a public body, not a corporation. Three Rivers (No 5) did not consider whether it would apply to a corporate context and if they had wanted to make such a significant inroad into legal professional privilege they should have said it in a clear way.
In response to this, the SFO argued that the facts of Three Rivers (No 5) applied directly to this case due the fact that the audit committee set up at ENRC was akin to the BUI, the unit within the Bank of England that was held to constitute the ‘client’, in the Three Rivers litigation.
Wider points of public interest
The court also heard submissions regarding the state of the law on privilege, the preservation of privilege as a fundamental right and the disadvantages the uncertainty created by the state of the case law.
The Law Society argued that:
- As legal professional privilege is a fundamental right, codified in the right to private life and the right to access to justice while also being well-established in common law, it can only be removed by clear statutory wording.
- For litigation privilege, the finding that criminal prosecution cannot be reasonably contemplated until the client knows that there is sufficient evidence that the party may be guilty and that a party will only know this after he has given the information to the lawyers, was against the presumption of innocence and the right not to self-incriminate.
- As to the restrictive definition of the client in Three Rivers (No 5), this is at odds with the rationale for legal professional privilege, i.e. that clients should feel comfortable to be candid with their lawyers without the fear of that information being disclosed. In this case, it was not one of private law against public law but public law (being legal professional privilege) against public law.
- English law should be consistent with other common law jurisdictions and that no other common law jurisdiction restricts privilege in this fashion. This has led to solicitors having to provide conflicting advice when advising corporations operating across different common law jurisdictions. Another consequence is that clients operating in different jurisdictions can provide different information to their lawyers. Further, due to the fact that the SFO can share information with counterparts such as the US Department of Justice, the restricted scope of privilege in English law means that US authorities can obtain information that they would not otherwise have access to under US law.
Reactions from the court
The majority of the comments and queries from the judges during the hearing indicated that the case needed to be judged on the facts, but acknowledging the importance of ironing out the law on privilege.
The court reminded the parties that the Court of Appeal is bound by the Three Rivers (No 5) decision but Lord Justice Leveson did say that the rationale for the decision may need to be considered.
The judges appeared to agree on the significance of the discrepancies with the law on privilege in other legal systems, with Lord Justice Vos stating that English law must be consistent with other common law jurisdictions and that, whilst it is not, common law is in jeopardy. In response, the SFO argued that if the court was minded to extend legal advice privilege to include employees in a corporate context, they should do so against the background of the introduction of a dominant purpose test as they have done in Hong Kong and Australia. Lord Justice Vos questioned the need for a dominant purpose test in relation to legal advice privilege on the basis that the definition of legal advice is already clear and there is no middle ground – legal advice is legal advice.
Squaring the circle
The court acknowledged that the issue of privilege, especially in relation to legal advice privilege in a corporate context is very confused, with competing authorities on both sides. Lord Justice Vos stated that one side shows a very wide definition of “client” and places high importance on the protections of legal professional privilege, while the other side suggests that legal advice privilege may as well not even exist in a corporate context. The role of the Court of Appeal in this hearing, Lord Justice Vos said, would need to be to “square the circle” on this issue.
The legal community has been clamouring for some clarity on the issue since the controversial decision in Three Rivers (No 5) 14 years ago. It will have to patiently await the Court of Appeal’s judgment in the next few months before there is either resolution or a new chapter of controversy to tackle.