In September 2018, the Court of Appeal handed down its judgment on ENRC’s appeal against Andrews J’s High Court decision in the case of The Director of the Serious Fraud Office v ENRC.
The judgment has been praised for going some way to restore sense and order to the protection of legal professional privilege, in particular for documents generated as part of an internal investigation into alleged misconduct and criminality, finding that the documents under consideration in this particular case (notes of internal investigation interviews made by the company’s solicitors and materials generated by forensic accountants as part of “books and records” reviews) were protected by litigation privilege.
It seemed for a brief moment that the dispute would make it all the way to the Supreme Court, allowing for a comprehensive review of the law of privilege and settling several controversial issues, but in October the SFO confirmed that it would not be appealing the decision.
Now that the dust has settled, we have selected some of the key passages from the Court of Appeal’s judgment and consider the implications for practitioners advising corporate clients.
Litigation privilege in a criminal (rather than civil litigation) context – was litigation in reasonable contemplation at the time the documents were created?
- “The whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement.”  This was the key basis for the Court of Appeal’s decision that a prosecution by the SFO was reasonably in contemplation at the time the documents came into existence. It is of note that this was simply a finding that Andrews J’s assessment of the facts had been wrong, rather than a decision that she had made a fatal mistake as to the law. This highlights just how important the facts of an individual case will be and that the circumstances of each must be carefully analysed. Notwithstanding the very fact-specific nature of this part of the judgment, it does nevertheless provide valuable assistance to lawyers advising in this area. The Court helpfully set out the key facts supporting its finding between paragraphs 92(i) and (x) of the judgment. Lawyers can compare the circumstances of their own clients’ cases against these and seek to draw parallels to support an argument that litigation is reasonably contemplated. The Court of Appeal’s conclusion that a prosecution was reasonably in contemplation at a time when a criminal investigation had not yet commenced, even where ENRC was co-operating with the SFO and it had agreed to share some of the findings of its investigation, not only reflects a common sense approach clearly reflecting the reality of cases of this nature, but also makes it more likely that lawyers and their clients will be able to support a claim to litigation privilege in future cases.
- “We are not sure that every SFO manifestation of concern would properly be regarded as adversarial litigation, but when the SFO specifically makes clear to the company the prospect of its criminal prosecution (over and above the general principles set out in the Guidelines), and legal advisers are engaged to deal with that situation, as in the present case, there is a clear ground for contending that criminal prosecution is in reasonable contemplation.”  The Court did not accept ENRC’s argument that an SFO investigation in itself constitutes litigation, thereby depriving lawyers of what would have been a wide-reaching general rule significantly expanding the remit of litigation privilege. Nevertheless, this particular passage of the judgment is a helpful indicator of the circumstances which might give rise to a reasonable contemplation of a prosecution and may assist in situations where a company or its advisers wish to seek clarification where the position appears ambiguous.
- “Whilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty, in our judgment, does not in itself prevent proceedings being in reasonable contemplation … The fact that there is uncertainty does not mean that, in colloquial terms, the writing may not be clearly written on the wall.”  Certainty as to whether litigation will commence has never been required in order to establish a claim of litigation privilege, and so the judgment does not alter the law in this regard. However, the Court of Appeal has helpfully clarified for lawyers advising corporate clients that just because internal investigations have not yet concluded and revealed how much basis there is to the concerns which have been raised, a prosecution can still be reasonably contemplated. It is important to bear in mind, however, that the test remains the same as before: it must properly be the case that litigation is in reasonable contemplation at the time the documents concerned come into existence. Each case must be assessed on its own facts.
LITIGATION PRIVILEGE – WERE THE DOCUMENTS CREATED FOR THE DOMINANT PURPOSE OF USE IN THE REASONABLY CONTEMPLATED PROCEEDINGS?
- “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 … 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.”  Here, the Court of Appeal was of the view that it had not been appropriate for Andrews J to consider that bringing the documents into existence for the purpose of compliance and governance was a separate and distinct purpose to conducting reasonably contemplated litigation, in the context of a threatened criminal investigation. This represents a common sense approach to a situation which is likely to arise for lawyers advising corporate clients in similar circumstances.
- “The fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party does not, in our judgment, automatically deprive the preparatory legal work that they have undertaken of litigation privilege.”  The Court disagreed with Andrews J’s interpretation of the law on this point, ensuring protection for the underlying work and materials generated as part of the production of a document which is intended to be shown to an opposing party. This is crucial for corporate clients engaged in a process of co-operation with the SFO (and indeed corporates and individuals in other circumstances), who may have agreed that the final report would be shared in the hope of dissuading the SFO from prosecuting, but who would not wish to have to provide the underlying material should the relationship fall apart.
- “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.”  This is perhaps one of the most significant points to emerge from the judgment, with wide-reaching consequences for all criminal cases and both individual and corporate clients. Where earlier decisions had created uncertainty as to whether avoidance of litigation could fall within the scope of litigation privilege (Andrews J was of the view that it could not), this ambiguity has now been cleared and lawyers can be confident that if a document is prepared for the dominant purpose of persuading a prosecutorial body not to bring charges, where such charges are in reasonable contemplation, it will be protected by litigation privilege
LEGAL ADVICE PRIVILEGE
- “We would have determined that Three Rivers (No. 5) decided that communications between an employee of a corporation and the corporation’s lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client.”  Although this comment was obiter, as the Court did not need to reach a decision on whether the documents were protected by legal advice privilege, this is of great importance. In the years since Three Rivers (No. 5), commentators have suggested that the case has been misinterpreted and did not create the general rule on which subsequent courts have relied, that in a corporate context only the communications of those employees who are authorised to seek or receive legal advice on behalf of the company are capable of attracting legal advice privilege. Indeed, this was one of the main submissions relied upon by ENRC in this case. The Court of Appeal has cleared this doubt and confirmed what the correct interpretation of Three Rivers (No. 5) should be when determining who is the ‘client’ in a corporate context. In circumstances where litigation privilege does not apply, therefore, lawyers must continue to treat employees who do not have such authorisation as third parties whose communications will not enjoy the protection of legal advice privilege.
- “If … it had been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so. For the reasons we have given, however, we do not think that it is open to us, so it is a matter that will have to be considered again by the Supreme Court”.  Despite the Court’s view on the correct interpretation of Three Rivers (No. 5), it gave a very strong indication that it did not agree with the decision. If the question of who should properly be regarded as the ‘client’ for the purposes of legal advice privilege falls to be determined by the Supreme Court in a future case, this clear expression of the Court of Appeal’s view (supported by compelling reasons, largely put forward by the Law Society – see paragraphs 125 to 129 of the judgment) is likely to have quite some bearing on the Supreme Court’s decision-making.
DEFERRED PROSECUTION AGREEMENTS (DPAS)
- “…to determine whether a DPA is in the interests of justice, and whether the terms of the particular DPA are fair, reasonable and proportionate, the court must examine the company’s conduct and the extent to which it cooperated with the SFO. Such an examination will consider whether the company was willing to waive any privilege attaching to documents produced during internal investigations … Had the court been asked to approve a DPA between ENRC and the SFO, the company’s failure to make good on its promises to be full and frank would undoubtedly have counted against it.”  The Court of Appeal’s comment on ENRC’s eligibility for a DPA was obiter, but it would be unwise to view this simply as a passing comment with little significance. The SFO has repeatedly highlighted the importance of co-operation by a company in its investigation when considering whether to enter into DPA negotiations. A key aspect of co-operation is the extent to which the company agrees to waive privilege over key documents, such as internal investigation interview notes. This observation by the Court of Appeal is likely to encourage the SFO to increase the importance it places on waiver of privilege and step up the pressure on companies to do this. Indeed, this is being quoted by the Director of the SFO, Lisa Osofsky, as a clear factor which will be considered, albeit on a case by case basis depending on the facts. Whilst, therefore, this decision should be welcomed by defence practitioners as a key development in strengthening the protection of legal professional privilege, in practice it may prove to be of little assistance where a company wishes to enter into DPA discussions with the SFO.