- The Court of Appeal in overturning a High Court decision has clarified the scope of legal professional privilege
- It is in the public interest that organisations can investigate criminal allegations prior to going to a prosecutor without losing the protection of privilege
- The distinction made by the High Court judge between civil and criminal proceedings for the purposes of litigation privilege was illusory
- Legal advice given to ‘head off, avoid or even settle’ reasonably contemplated proceedings is as much protected by privilege as that given to defend such proceedings
- Documents generated during a company’s investigation into criminal allegations that addresses both compliance issues and potential litigation can, depending on the facts, be protected by privilege
Construction businesses are subject to a wide range of obligations, from complex contract terms to those imposed by diverse regulations and statutes. Examples of the latter include building, bribery and corruption, health and safety, public procurement regulations and laws covering payment procedures.
When something goes wrong and potential civil or criminal liability arises, it is imperative that the management team and their legal counsel find out what has happened – and quickly. Prompt investigations enable the team to take early legal advice about their position, to address issues swiftly, appropriately and sensitively (for example, in health and safety cases), to comply with the law, to minimise business disruption, to protect the business’ legal position and/or to protect employees.
Historically, these investigations are sought to be carried out confidentially, and efforts are made to ensure that the material they generate is, to the extent possible, protected by legal professional privilege (LPP). There are two forms of LPP: broadly speaking, litigation privilege covers documents created for the purpose of legal proceedings that are ongoing or in contemplation; and legal advice privilege covers documents generated for the purpose of obtaining legal advice. Once validly asserted, litigation privilege is a substantive right that allows materials produced in preparing for adversarial proceedings to be withheld from disclosure, from third parties or the court. This confidentiality encourages businesses to discover the full facts of a situation and take appropriate action without fear of having to make disclosure.
Alarm bells caused by High Court ruling
In May 2017, the High Court decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd  1 WLR 4205 (the 2017 judgment) dealt a blow to litigation privilege (particularly in the context of criminal proceedings) with Mrs Justice Andrews controversially paring back the extent of its protection.
After a whistle-blower highlighted potential corruption in its African and Kazakhstan operations, ENRC had appointed advisors to investigate potential fraud and corruption. The SFO exercised its statutory right to investigate any suspected offence which reasonably appears to involve serious or complex fraud. However, statute also allows those being investigated to refuse to disclose documents on the grounds of LPP. The SFO and ENRC disagreed about whether certain categories of documents sought by the SFO were privileged.
The SFO took the matter to court, applying for disclosure under s 2 of the Criminal Justice Act 1987. In a judgment widely seen as limiting the availability of LPP, Andrews J ruled that ENRC must disclose various documents generated during internal investigations undertaken by its solicitors and forensic accountants. These included external lawyers’ notes of interviews with employees and suppliers, and materials generated by the forensic accountants in their ‘books and records’ review.
ENRC appealed. Such was the alarm generated by Andrews J’s decision that the Law Society gained permission to intervene on appeal, noting that the rule of law depended on all parties being able to seek confidential legal advice without fear of disclosure.
The Court of Appeal ruling
The Court of Appeal (CA) agreed, clarifying the scope of litigation privilege, systematically overturning Andrews J’s decision and finding that, on the facts, all categories of documents the subject of the appeal were protected from disclosure by litigation privilege. In so doing, the CA addressed several principles of scope and application and reunified the civil and criminal positions.
Shedding light on its rationale, the CA emphasised that it was obviously in the public interest that companies should be prepared to investigate criminal allegations prior to going to a prosecutor such as the SFO, without losing the protection of privilege for the work product and consequences of their investigation. The CA acknowledged that, were privilege to be lost, companies might well be tempted not to investigate at all, for fear of being forced to reveal what had been uncovered to a prosecuting authority.
For most clients and in-house lawyers conducting internal investigations this decision may not transform their working practices, but it restores the availability of privilege to a somewhat more practical footing, recognising the realities of operating in a regulated corporate environment.
Rulings on the key components of LPP
On the key components of LPP, the CA held as follows.
Adversarial proceedings in contemplation
It is a necessary ingredient of litigation privilege that adversarial proceedings must be reasonably in contemplation.
At first instance, Andrews J distinguished between civil and criminal process, holding that criminal proceedings could only be ‘reasonably contemplated’ once the defendant knew enough of what the investigation was likely to unearth to realistically expect a prosecutor to secure a conviction. This led to widespread concern that clients would have to effectively self-incriminate in order to claim litigation privilege in a criminal context.
The CA disagreed, confirming that litigation privilege can attach before either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken. A party will often need to make further investigation before it can say that proceedings are likely, and that uncertainty does not in itself prevent proceedings from being in reasonable contemplation.
The CA also held that Andrews J had drawn an ‘illusory’ distinction between civil and criminal proceedings, and noted that, while not every SFO manifestation of concern would properly be regarded as adversarial litigation, nonetheless where the SFO specifically made clear to the company the prospect of its criminal prosecution, and legal advisers were engaged to deal with that situation, there was a clear ground for contending that criminal prosecution was in reasonable contemplation.
Dominant purpose: avoiding contemplated litigation
A further necessary ingredient of litigation privilege is that the relevant documents have been prepared for the sole or dominant purpose of the conduct of litigation. Andrews J considered that, while documents created for the defence of contemplated proceedings, or to settle litigation already in train, could attract litigation privilege, documents created in order to obtain advice on how to avoid contemplated litigation could not.
The CA overturned this finding, holding that, in both a civil and a criminal context, legal advice given so as to head off, avoid or settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings.
Dominant purpose: compliance and remediation
It is in practice notoriously difficult to assess the extent to which a company’s internal investigation is conducted for the purpose of fact-finding in accordance with its own compliance requirements, as opposed to for the purpose of proceedings that will likely result if the investigation unearths wrongdoing.
At first instance Andrews J found that documents produced in the course of ENRC’s investigation had been produced for the dominant purpose of ascertaining the facts to see what had happened and dealing with compliance and governance, and not for the defence of contemplated proceedings.
The CA determined that, on the facts of this case, the need to investigate corruption for compliance and governance reasons was just a subset of the defence of contemplated proceedings, and not a distinct dominant purpose.
It noted that:
‘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.’
As such, where a criminal investigation and prosecution are reasonably in contemplation at the time of undertaking a fact-find, the reason for the company’s investigation of allegations can be ‘brought into the zone where the dominant purpose may be to prevent or deal with litigation’. In-house counsel may draw some cautious comfort from the pragmatic acknowledgment that a corporate’s investigation is in reality generally addressing both compliance and litigation imperatives.
Legal advice privilege: Three Rivers (No 5)
Respective counsel for ENRC and the intervening Law Society sought to persuade the CA to address and overrule the controversial finding in Three Rivers District Council v Governor & Company of the Bank of England (No 5) (Three Rivers (No 5))  EWCA Civ 474 that the ‘client’ for the purposes of legal advice privilege constitutes only those individuals within a company authorised to seek and receive legal advice on its behalf.
The CA did not consider it was open to it to ignore the clear determination of the CA in Three Rivers (No 5), and said that, if the ambit of Three Rivers (No 5) was to be differently decided, that decision would have to be made by the Supreme Court.
Nevertheless, the CA set out its views on the effects of Three Rivers (No 5) as currently interpreted. The decision presents no problems for individuals and small businesses since, as was the position in most 19th Century cases, the individual or board are themselves likely to have information about a case to provide to their lawyer. However, the modern world must cater also for legal advice sought by large corporations, in which the relevant information is unlikely to be in the hands of the board or in-house legal. The CA considered that, if a multinational corporation cannot ask its lawyers to obtain necessary information from those employees with first-hand knowledge of it, it will be in a less advantageous position than a small entity, and emphasized that ‘whatever the rule is, it should be equally applicable to all clients, whatever their size and reach’.
The CA also noted the Law Society’s submissions that English law on this particular issue is out of step with international common law, despite legal professional privilege being:
‘... a classic example of an area where one might expect to see commonality between the laws of common law countries, particularly when so many multinational companies operate across borders and have subsidiaries in numerous common law countries.’
As such, the CA noted that, had it been open to it to do so, it would have been in favour of departing from Three Rivers (No 5).
At the time of writing, it is not known whether any party might appeal to the Supreme Court, presenting that opportunity.
The state of play
Without that further Supreme Court appeal, LPP remains broadly where it has been for 15 years. With respect to litigation privilege the position is also restored to a more familiar state, with consistency between civil and criminal process, and no distinction drawn between the purposes of defending, settling or avoiding proceedings. Importantly, the CA has signposted how to reconcile the realities of dual-purpose investigations, where both compliance and litigation defence play a part.
Nonetheless, the tests for whether documents have the benefit of LPP remain stringent.
In-house counsel will remain live to the need to keep under ongoing review and carefully document exactly when adversarial process comes into reasonable contemplation. It is very clear that evidence in this regard will be scrutinised by the court on the specific facts of each case. In circumstances where counterparties and regulators are increasingly testing assertions of privilege, management teams should be wary of creating and distributing documents in the early stages without first instructing a solicitor to manage the investigation.
This article was first published in Construction Law on 1 November 2019