On Monday, 8 May 2017, the eagerly awaited judgment in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd1 was handed down, providing further clarity – and controversy – surrounding the applicability of privilege to documents arising out of internal investigations.
The Disputed Documents
- Notes taken by lawyers of evidence given during interviews carried out as part of the internal investigation.
- Documents created by forensic accountants engaged to carry out a books and records review.
- Documents relating to the advice provided by ENRC’s lawyers at a presentation to ENRC.
- Documents sent to the SFO by ENRC during the early settlement process.
Legal Advice Privilege
Following the Court of Appeal’s controversial decision in 2003 in Three Rivers (No 5)2 (Three Rivers), in which the court held that the definition of “client” for the purpose of legal advice privilege was limited to only those individuals authorised by the company to seek or receive legal advice on its behalf, it has become increasingly difficult for companies to rely on legal advice privilege over documents arising out of internal investigations.
One of the main issues post Three Rivers was the uncertainty as to when, if at all, legal advice privilege would apply to communications between the employees of a company and its lawyers in circumstances where a specific designated unit of employees had not been set up. Regulators such as the SFO openly maintained that documents such as interview notes and factual summaries were not privileged regardless as they were merely factual accounts and not produced for the purpose of legal advice.
Further clarity on this issue was provided earlier this year in two decisions which precede this judgment; Astex Therapeutics Limited v AstraZeneca AB3 (Astex) and The RBS Rights Issue Litigation4 (RBS).
In both of these cases, the court confirmed that the question “who is the client?” for the purpose of assessing whether legal advice privilege applies will continue to be interpreted narrowly. In Astex, Chief Master Marsh held that when employees of a company are interviewed during the course of an internal investigation as part of a fact-finding exercise, they provide information to the lawyers in their role as “employees” and not as the “client”. Mr Justice Hildyard went on to express the view in RBS that the “client” would generally be limited to those individuals comprising the “directing will and mind” of the company – i.e. the board of directors.
The practical implication of these decisions for companies conducting internal investigations was that, unless litigation privilege applied, notes taken of employee interviews during the fact-gathering stage of an investigation were unlikely to be covered by legal advice privilege.
ENRC submitted that Three Rivers was not necessarily wrongly decided but that it had been wrongly interpreted in the above cases. The correct interpretation, it argued, was that a solicitor instructed by a corporate client to carry out an investigation could obtain information from employees other than the directing body within the company and retain privilege if that information was required in order to advise the company.
Unsurprisingly, given the recent approach of the courts to this issue, Mrs Justice Andrews found ENRC’s position both “contrary to authority and wrong in principle.”
The courts have therefore clearly made a distinction between individuals authorised by the company to instruct solicitors and obtain legal advice on the company’s behalf and, on the other hand, individuals employed by the company who are subsequently authorised or required as part of their employment to provide the lawyers with information relevant to the investigation. It is now well versed that only the former comprise the “client”.
As to whether an individual or group of individuals within a company has been authorised by the company to obtain legal advice on behalf of the company, Mrs Justice Andrews refrained from expressing a view on Mr Justice Hildyard’s observation that the class of “client” would generally be limited to those comprising the “directing mind and will of the company” but expressed the view that in practice one would expect a company to divest such authority either to the board of directors or to its in-house counsel.
Unsurprisingly, however, the court upheld ENRC’s claim to privilege in respect of the documents relating to the presentation of advice given to ENRC by its lawyers.
ENRC sought to claim litigation privilege in the alternative. Its claim was based on the proposition that once a criminal investigation by the SFO had been in the company’s contemplation, it would be said that a criminal prosecution was also in reasonable contemplation such that litigation privilege would apply. In that regard, ENRC claimed to have formed the view that prosecution was reasonably in contemplation either in April 2011, when questions were raised in Parliament in connection with certain business dealings of ENRC, or in August 2011, when the SFO wrote to ENRC following press articles reporting on whistle-blower allegations.
Mrs Justice Andrews made a distinction as to when “litigation” could be deemed to be reasonably in contemplation for civil and criminal proceedings. With regard to civil proceedings, she considered that there was no real impediment to a party bringing an unfounded claim against the subject of an investigation, other than potential adverse cost consequences. The commencement of regulatory investigation could therefore reasonably lead a prospective defendant to form the view that civil litigation was in contemplation. In contrast, before proceeding with a criminal prosecution the CPS must satisfy a two stage test: first, that there is sufficient evidence to provide a realistic prospect of a conviction and, second, that it would be in the public interest to prosecute.
On that basis, Mrs Justice Andrews concluded that the commencement of a criminal investigation would not usually be sufficient of itself to lead a prospective defendant to conclude that prosecution is reasonably in contemplation. Rather, a party would need to show that there was sufficient evidence to create a reasonable expectation that a prosecution might follow, i.e., that it was aware of evidence to suggest that there was some truth to the accusations being investigated to warrant the prosecutor bringing a prosecution.
That being said, Mrs Justice Andrews accepted that it will not always be necessary for a full detailed investigation to have been completed before sufficient evidence is revealed to render a prosecution likely. The defendant may, for example, already be aware of the facts or sufficient evidence may be uncovered fairly early on in the investigation. Each case will be decided on its facts and the available evidence.
The court was satisfied that at the time the documents were created ENRC had genuinely contemplated an investigation by the SFO; however, it had not produced sufficient evidence to satisfy the court that it had also believed that the investigation would reveal evidence that would likely result in a prosecution. The contemplation of the investigation alone was not therefore sufficient to attract litigation privilege.
Dominant purpose test
In the event that Mrs Justice Andrews was wrong on the above, she went on to consider whether the remaining criterion had been met – the dominant purpose test.
ENRC argued that the dominant purpose of the documents in question was to obtain legal advice pertaining to the conduct of the anticipated litigation. However, on the evidence, the court held that the purpose of the investigation had in fact been to enable ENRC to prepare for an investigation by a regulator or other investigatory body and to address any compliance and regulatory issues ahead of that investigation. In parallel, ENRC had also been trying to identify whether there was any truth in the allegations being made against the company. Neither of those aims was held to be sufficient to attract litigation privilege. This serves as a warning that the court did not consider the “avoidance of a criminal investigation” to equate to “the conduct of a defence to a criminal prosecution” for the purpose of litigation privilege.
Similarly, the court was not satisfied that the documents created as part of the forensic accountants’ review had been created for the dominant purpose of the conduct of the litigation. The evidence provided by the forensic accountants was that the purpose of their review had been to “identify issues“ in anticipation of “feared intervention“ and to assist with the internal investigation. The court found that the purpose of “identifying issues” in contemplation that a regulatory or law enforcement body may carry out an investigation fell short of the dominant purpose test.
Cooperation with regulators / law enforcement agencies
A further issue for ENRC was that it was clear from the evidence that ENRC had always intended to share certain documents created as part of the internal investigation with the SFO – its adversary – as part of the SFO’s early co-operation regime.
Mrs Justice Andrews distinguished between documents which, at the time of their creation were intended to be shown by a party to a potential adversary, and documents which were in fact created for the purpose of the conduct of the litigation but a party may at some stage choose to waive privilege for the purpose of trying to reach a settlement. Mrs Justice Andrews held that litigation privilege would only extend to the latter.
Since ENRC had always intended to share the investigation documents with the SFO, it could not be said that those documents had been created for the purpose of the preparation of ENRC’s defence or the conduct of the litigation generally, and so ENRC’s claim for litigation privilege failed.
This raises an interesting question as to the position in relation to drafts and revisions of such documents. It may be arguable that until these documents are finalised they are created for the purpose of seeking legal advice and would therefore fall within the ambit of legal advice privilege.
Implications for companies
The current trend of rolling back privilege in an investigatory context is clearly a troublesome development for companies. If companies are effectively not going to be able to claim privilege over any of the material produced while they seek to identify what happened, they may well choose not to investigate at all in order to prevent the documents produced being disclosable later down the line. A reduction in self-reporting would also have the undesirable effect of putting greater burden on the resources of already overstretched regulators and enforcement bodies in the UK.
What is even more concerning is the implications on litigation privilege. As it is for the party asserting a right to privilege to satisfy the court that its claim has been properly made out, the consequence of this decision appears to be that a defendant will in practice need to incriminate itself in order to satisfy the evidential test as to when a prosecution was reasonably anticipated – which would appear to defeat the purpose of privilege entirely.
ENRC has indicated an intention to appeal. However, unless or until the courts reconsider this decision, we set out below a few points to think about in light of this decision:
- If the investigation is cross-border, advice should be sought on the privilege protections available in each jurisdiction as they can differ quite significantly.
- Careful consideration should be given to the individuals required to form the client group as only their communications with the lawyers will attract legal advice privilege.
- If interviews are going to be conducted then it should be agreed with the lawyers at the outset how the factual information will be recorded and /or provided to the lawyers.
- Consideration should be given to the timing of the investigation and whether the company could benefit from litigation privilege if the investigation were delayed.
- If subject to criminal investigation, consideration should be given as to whether sufficient information has been uncovered about the underlying accusations before communicating with lawyers or third parties regarding the investigation.