Privilege in investigations: English court overturns controversial limits on litigation privilege in SFO v ENRC

Speedread

Companies often need to undertake internal investigations into regulatory issues or potential wrongdoing. Recent English case-law highlights the need for care in generating materials in such investigations, which will not automatically be protected by legal privilege and may sometimes be used against the company in civil or criminal litigation.

In Serious Fraud Office v Eurasian National Resources Corporation¹ (discussed here) the English High Court had controversially limited the circumstances in which a company could claim legal privilege over materials generated during internal investigations. In a decision that will be broadly welcomed by lawyers and companies alike, the English Court of Appeal last month reversed that decision. Nevertheless, it is important to exercise care in such situations, and to remember that the determination of whether privilege applies in any particular scenario will always be fact specific.

This bulletin provides a briefing on the key findings, and practical tips for preserving privilege in internal investigations.

Recap

ENRC commenced an internal investigation in 2011 after whistle blower allegations of fraud, bribery and corruption. It engaged with the SFO during its investigation, providing frequent reassurances that it was "committed to full transparency". However, the SFO launched a criminal investigation in April 2013, having voiced concerns that ENRC had not made any substantive report of wrongdoing. When ENRC refused to disclose notes, records and correspondence produced during its internal investigation, the SFO issued proceedings challenging ENRC's assertion of privilege.

The High Court concluded that most of the documents were not privileged. Controversially, it held that reasonable anticipation of a criminal investigation did not amount to reasonable anticipation of a prosecution, and therefore did not trigger the protection of litigation privilege. It also found that litigation privilege only applied to documents created with the sole or dominant purpose of conducting litigation, and not to documents produced with the purpose of enabling advice to be taken in connection with anticipated litigation.

The High Court also refused to hold that certain interview notes were protected by legal advice privilege. Adopting the narrow definition of 'client' in Three Rivers (No.5)², it found that there was no evidence that the individuals interviewed were authorised to seek or receive legal advice on behalf of ENRC.  

Key points from the Court of Appeal's decision on Litigation Privilege

The Court of Appeal judgment focuses largely on litigation privilege. In reversing the High Court's decision, it held that a criminal prosecution was in ENRC's reasonable contemplation and that the documents were created for the dominant purpose of resisting or avoiding those proceedings. Accordingly, they were protected by litigation privilege.

The following Court of Appeal findings are worth noting:

• Even though a formal investigation had not commenced, this was only one part of the factual matrix and was not determinative in deciding if litigation privilege should apply
• Uncertainty as to the likelihood of criminal prosecution did not mean that no criminal prosecution was in contemplation. The dialogue between the parties illustrated that the "sub-text of the relationship" was the possibility, if not the likelihood, of prosecution, if the self-reporting process did not result in a civil settlement
• While not every "manifestation of concern" by the SFO would properly be regarded as adversarial litigation, there is a clear ground for contending that a criminal prosecution is in reasonable contemplation when the SFO specifically makes clear to a company the prospect of its criminal prosecution, and legal advisors are engaged to deal with that situation
• The Court of Appeal also rejected the High Court's decision that none of the documents had been created for the dominant purpose of resisting contemplated criminal proceedings – just because ENRC's solicitors had prepared documents with the intention of showing them to the SFO, did not automatically deprive their preparatory legal work of litigation privilege. The Court of Appeal held that the fact that there was no agreement between the SFO and ENRC to share documents undermined the SFO's arguments in this regard
• Helpfully, the Court of Appeal held that it is "obviously in the public interest" that companies should be prepared to investigate allegations from whistle blowers before going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege over work product.

Key points from the Court of Appeal decision on Legal Advice Privilege

ENRC had urged the Court of Appeal to tackle the "long standing academic dispute" as to the correctness of the narrow interpretation of 'client' adopted in Three Rivers (No.5). Given its conclusions on litigation privilege, the Court of Appeal held that that question was effectively moot, but did provide some insight on how it would have determined the matter, if it had been necessary to do so. In summary:

• It indicated that – bound by Three Rivers (No.5) – it would have held that communications between an employee of a corporation and its lawyers could not attract legal advice privilege, unless the employee was tasked with seeking and receiving such advice on behalf of the client
• It did, however, express some doubt as to the correctness of this position, commenting that it rendered English common law "out of step" with international common law. Nevertheless, it held that it would be a matter for the Supreme Court to determine. 

Commentary

English decisions are persuasive rather than binding on the Irish courts. This English Court of Appeal decision that litigation privilege can be claimed in respect of internal investigations is consistent with existing Irish authorities in which the Irish courts have recognised the right to claim privilege in similar circumstances (such as in Director of Corporate Enforcement v Leslie Buckley³) and reinforces such Irish authorities on litigation privilege.

From an Irish perspective, it will also be interesting to see whether the narrow definition of 'client' adopted in Three Rivers (No.5) will be revisited in the near future in either Ireland or England. In Ireland practitioners have traditionally not adopted this narrow definition for the purposes of determining the application of legal advice privilege. One Irish High Court decision, University College Cork v Electricity Supply Board⁴ did appear to adopt the Three Rivers approach. However, the point does not appear to have been fully venitlated in those proceedings, leaving scope for argument as to whether the  decision reflects the law on this point in Ireland.  

Key tips for preserving privilege

• Advance planning and regular review is required to protect privilege
• Have a clear paper trail showing when litigation is first contemplated, and why
• Consider whether any interviews should be carried out before litigation is contemplated, and if so, whether they should be documented
• Define the 'client', record it in writing and keep that issue under review. Ensure that all persons with whom legal advice and privileged information is likely to be shared are covered Consider the position of group entities
• Arrange for independent legal advice as and when necessary, particularly if criminal prosecution is likely
• Avoid generating unnecessary documentation which may not attract privilege
• Where appropriate mark documents/emails 'Legally Privileged & Confidential' – but understand that the courts will ultimate decide on whether privilege applies based on the substance of the document, rather than any label placed upon it.

For further information please contact Katie O'Connor.

Date published: 10 October 2018

1 [2017] EWHC 1017 (QB)

2 [2003] CP Rep 34

3 [2018] IEHC 51

4 [2014] IEHC 135 It held it necessary, "where the client is a corporate […] to consider whether the individual making the communication is a person engaged or employed to obtain or receive legal advice on behalf of the client." In that case, it was decided that a station manager would not constitute the 'client' for the purposes of legal advice privilege.