Aziz Rahman explains exactly what the latest Court of Appeal ruling regarding privilege in investigations means for companies.
The Serious Fraud Office’s (SFO) decision not to appeal last month's ruling that documents generated in connection with an investigation into the Eurasian Natural Resources Corporation (ENRC) were protected by litigation privilege will please many. Yet everyone would be wise to heed the SFO’s comments when announcing this decision.
The SFO’s announcement means that the Court of Appeal's judgement in the case is the authority on the matter – an authority that acknowledges how important it is that businesses can investigate thoroughly an internal problem. The judgement returns litigation privilege to its standing before the High Court’s controversial 2017 judgement, which stated that ENRC could not claim litigation privilege over documents created as part of its internal investigations in connection with an SFO investigation.
The Court of Appeal ruled that the High Court was incorrect to decide that SFO criminal proceedings were not "reasonably in contemplation" at the time when the documents were created.
With the SFO now saying it will not appeal the Court of Appeal’s decision, there is now certainty when it comes to privilege. But what must be noted is that when announcing its decision not to appeal, the SFO also said that it will continue to assess the merits of all privilege claims and “remains prepared to challenge those it considers to be ill-founded”. So while the SFO has accepted the Court of Appeal’s judgement, it is in no mood to walk away from a fight if it sees instances where privilege is not deserved.
There can be little doubt that the judgement handed down by the Court of Appeal on September 5th is an important one. It now appears to have given finality to the issue of how far corporates have the protection of legal professional privilege when instructing lawyers to assist in internal investigations into potential criminal wrongdoing.
ENRC was engaged in an internal investigation in 2011 after a whistle-blower made allegations of fraud and corruption overseas. ENRC’s then external lawyers engaged with the SFO on the progress of the internal investigation until 2013, when they were dismissed. The SFO then commenced its own formal criminal investigation. The SFO used its powers under s2 of the Criminal Justice Act 1988 to compel the production of documents; including statements and evidence provided by the company's employees and officers, reviews of books and records by forensic accountants to identify system weaknesses and potential improvements, factual evidence and documents containing legal advice. ENRC objected on the grounds that the material was the subject of legal advice privilege. The SFO's case was that the documents containing legal advice could be redacted before disclosure, but that there was no generic entitlement to litigation privilege. The SFO sought a High Court declaration.
The High Court held in favour of the SFO. Litigation privilege (LP) gives protection from disclosure of documents or communications between a lawyer, its client or a third party, created for the ‘dominant purpose’ of preparing for existing or anticipated litigation. LP cannot protect documents produced at a time when there was no more than a “general apprehension of future litigation” – see the civil test in USA v Phillips Morris Inc  EWHC 3028 (Comm). Mrs Justice Andrews in the High Court found that a criminal investigation by the SFO was not "litigation": it was just a preliminary step taken prior to a decision to prosecute and reasonable contemplation of a criminal investigation did not automatically equate to reasonable contemplation of a prosecution. Mrs Justice Andrews found that it all depended on the facts and ENRC’s case fell at the first hurdle because the company could not show that criminal litigation was a ‘real likelihood rather than a mere possibility’.
The Court of Appeal roundly rejected that finding, saying that “not only was a criminal prosecution reasonably in ENRC’s contemplation, but the judge ought to have also determined that the category 1 documents were brought into existence for the dominant purpose of resisting or avoiding those (or some other) proceedings” (para 113). The category 1 documents were the notes taken by the lawyers of evidence given to them by individuals during their investigation - 85 people had been interviewed. This is clearly a huge relief for those tasked with engaging lawyers to help them conduct internal investigations following the discovery of, for example, contracts obtained potentially through bribery.
The Court found that LP applied not just to notes of interviews but also to materials generated by an external firm of forensic accountants as part of a ‘books and records review’ for the company. Mrs Justice Andrews had found that this category of documents had related only to compliance issues. This too will be a mighty relief to companies who want, sensibly, to look at internal safeguarding as part of the investigation.
The Court also considered when, on the facts of the case, LP started to bite. The SFO had contacted ENRC in August 2011, suggesting that the firm ought to consider the SFO’s Self-Reporting Guidelines. On any measure such a letter must have created a real stir at ENRC. But the High Court found that thereafter what was in contemplation was just an investigation into the facts – i.e. the internal investigation - and that the company could not clear the ‘first hurdle’ because the company could not show that criminal litigation was a ‘real likelihood rather than a mere possibility’. The Court of Appeal found that the Judge was simply wrong on this score – the internal investigation was a “subset of the defence of contemplated legal proceedings” (para 118). This is common sense prevailing, it is suggested.
English law is now more in line with US law on this issue. That is a relief to both lawyers and their corporate clients. Indeed, the Law Society had intervened in the litigation and one of its arguments was that English law, if the High Court judgment had remined intact, was; “out of step with the international common law on this issue.” The Court of Appeal appeared to agree (129).
Legal Advice Privilege
The Court of Appeal also made certain findings on Litigation Advice Privilege (LAP). But the reality was that, as so many of the documents concerned were caught by LP, the LAP issues were not so important. However, one aspect did trouble the Court of Appeal here.
LAP attaches to confidential communications between solicitors and their clients for the purposes of giving or receiving legal advice; even communications made when litigation was not in contemplation. In the High Court, ENRC claimed LAP in relation to some documentation as an alternative to LP. The High Court found against ENRC. In the case of a corporate client, the privilege only attached to communications between the lawyer and those individuals authorised by the company to obtain the legal advice – per RBS (Rights Issue Litigation), Re  EWHC 3161 (Ch),  1 W.L.R. 1991. Therefore, a solicitor's communications with persons other than those directly instructing him would not be protected. There was no evidence that persons interviewed by the lawyers had been authorised by the company to seek and receive legal advice – the communications between those individuals and the external lawyer were not instructions to the law firm. In coming to this conclusion, the Court upheld the narrow definition of ‘client’ as meaning only those employees who are authorised to communicate with the legal advisor.
The Court of Appeal was troubled by this as on one view the SFO’s stance was supported by the Appeal Court case of Three Rivers District Council & Ors v Governor and Company of the Bank of England (No.5)  QB 1556. That case found that communications between an employee of a corporation and the corporation’s lawyers could not attract LAP unless that employee was tasked with seeking and receiving such advice. The Court found that if it was to be argued that Three Rivers was wrong then that would require the Supreme Court to consider the argument. But it was able to find that small companies with a small number of employees clearly were protected by the LAP principle and there was no good reason why large multi-national corporations, where the staffing issues would be very different, should not also be protected (para 127).