The Court of Appeal’s decision in SFO v ENRC has effectively overruled parts of this decision, making clear that litigation privilege can apply to communications and documents created during an investigation before any prosecution is commenced and before the company has discovered evidence sufficient to justify a prosecution. The Court noted that, unlike an individual who will know whether they have committed a crime, a company may need to find out what its employees have done before it can assess its culpability. For more analysis of this decision see our article here.
With the ENRC Appeal to the Court of Appeal just two months away, the Divisional Court in AL, R (On the Application Of) v XYZ Ltd & Ors  EWHC 856 (Admin) has added to the body of case law supporting the proposition that litigation privilege is not available in a criminal context until the prosecution authorities have decided actually to prosecute. This will likely make it more difficult to successfully challenge Andrews J’s findings at first instance in ENRC.
The Court held (albeit obiter) that:
- first interview notes of employees taken to decide whether a company should make a self- report to the SFO are not privileged
- oral proffers of the contents of such notes waive any privilege over them (even assuming there is any privilege to waive)
- it is unlikely that there could be a limited waiver as against the SFO in such cases given that the SFO has a duty of disclosure over such material to criminal defendants, and
- a company’s duty of co-operation per its DPA should require the SFO to challenge much more robustly than it did here whether the company’s assertions of privilege are valid and whether such notes should have been handed over.
Our initial views on the consequences of this decision are as follows:
- while many of the Court’s observations were made obiter, its rulings will have a negative impact on ENRC’s appeal before the Court of Appeal in July 2018
- we must expect the SFO’s reaction to the sustained judicial criticisms of its somewhat benign approach to privilege in this case to cause it to act much more robustly in future in terms of challenging claims to privilege
- once more, there are serious lessons to be absorbed about the dangers of attempting limited waivers of privilege, especially where criminal justice authorities are concerned, and
- companies entering DPAs must give careful consideration to what they may now be asked to provide to the SFO under the inevitable obligation to co-operate with investigations into individuals.
The XYZ DPA
In XYZ, a company (referred to as XYZ until all related proceedings are concluded) became aware that it may have won a number of contracts because its employees had paid bribes. It instructed external lawyers to conduct a review of their behaviour to enable it to decide whether or not to self-report these issues to the SFO. Lengthy interviews of four individuals were conducted by XYZ’s lawyers. The interviews were not recorded, but the interviewing lawyers took detailed notes. These formed part of the material used by XYZ to decide that it should self-report.
Subsequently, the SFO concluded a DPA with the company under which it prepared a draft indictment which was then suspended with the approval of the Crown Court. Inevitably, the DPA contained as a condition of the continued suspension of the indictment a requirement that XYZ would “co-operate fully and truthfully” with the SFO in its efforts to investigate and proceed against XYZ’s employees.
Before any prosecution was commenced, the SFO sought the full interview notes. XYZ asserted privilege. Although the SFO disagreed with this assertion, after some negotiation XYZ agreed to allow one of its external lawyers to give an “oral proffer”. Under this process, the lawyer read out, but did not provide a copy of, a statement which purported to summarise interviews with 4 key employees. The lawyer stated that no privilege was waived over the full notes of the interviews. The SFO recorded and then transcribed the summaries. Ultimately, one of the 4 employees was charged, with others, to all of whom the SFO disclosed the summaries.
As XYZ continued to assert privilege over the full interview notes, one defendant applied to the Crown Court for an order requiring the SFO to disclose the full interview notes. The Judge in the Crown Court refused on the basis that the notes were not in the SFO’s possession (as required by its disclosure obligation under the Criminal Procedure and Investigation Act 1996), albeit he expressed misgivings about the situation. The SFO again asked XYZ to produce the full notes and again it refused. The SFO informed the defendant it would take no further steps against the company.
The Judicial Review
AL was one of the four employees interviewed in XYZ’s investigation and is now the defendant in criminal proceedings relating to the alleged bribery. AL sought judicial review of the SFO’s decision not to pursue the company for breach of its duty of cooperation under the DPA. The Divisional Court held that the High Court is not the appropriate forum in which a dispute about disclosure of this sort should be litigated. It concluded that there are adequate alternatives open to the claimant in the Crown Court e.g. pursuant to s. 2 Criminal Procedure (Attendance of Witnesses) Act 1965, which should be sufficient to enable this issue to be resolved. In effect the judgment suggests that XYZ be ordered to bring the interview notes to court as material evidence in the case.
Having arrived at this conclusion, the Court (Holroyde L.J. and Green J.) nonetheless expressed its real reservations as to the position adopted by the SFO in this case. While acknowledging that they could not bind a Crown Court if AL pursued the matter afresh in that forum, they made clear that had they decided that the High Court had jurisdiction to deal with this dispute then it would have quashed the decision of the SFO and remitted the issue for reconsideration. It concluded that in several respects the SFO had failed to address relevant considerations, had taken into account irrelevant matters and had applied an incorrect approach to the law.
The privilege issues
It would seem to follow from this that their observations summarised below on important privilege issues are obiter. Even so, the Court’s observations in this case will undoubtedly add to the challenges of the appellants and any interveners in the ENRC Appeal listed for early July 2018, as follows:
- Were the first interview notes privileged? No: the purpose of these interviews, as explained to the SFO, was to enable XYZ to decide whether or not to self-report to the SFO that it had engaged in various criminal activities involving the payment of bribes to foreign agents. In other words, the interviews were integral to the taking of the decision whether to report; they were not exercises in evidence collection to support a decision that had already been taken. For the Court, this distinction was important, since at the time the interviews occurred XYZ did not know what would have emerged from the lawyers’ investigation and therefore whether it would self-report and therefore whether proceedings might be likely. Litigation privilege would therefore not apply.
- Based on Three Rivers (No 6), The RBS Rights Issue Litigation and ENRC, the Court was clear that in such circumstances the law “as it stands today” is settled and that privilege does not apply to first interview notes. Accordingly, interview material obtained for the purpose of deciding whether there is evidence of a breach of the law is too remote from the conditions for the application of privilege set out in Three Rivers, as confirmed in RBS and ENRC.
- What about the pending appeal in ENRC? Having referred to the recent Court of Appeal Criminal Division decision in R -v- Jukes, which expressly endorsed Andrews J in ENRC, the Divisional Court concluded:
“The argument that the law is uncertain pending clarification by further case law in the appellate Courts is untenable. There now exist two High Court Judgments, one of the Court of Appeal and one of the House of Lords. These bind the Crown Court. They represent the law as it stands today. In any dispute the Judge would simply follow these authorities.”
This might admit of a Delphic distinction that the Divisional Court was only referring to the position of a Crown Court judge in the event AL had to pursue the SFO further, but even so this is a surprising observation that seems to encroach upon the position of the Court in the pending appeal.
- What of the argument that the interview notes were not like those in the RBS and ENRC cases, because they reflected the lawyers’ mental impressions? That did not work: “ … the suggestion that the inclusion within the interview notes of lawyers' musings etc served to cloak the interview notes themselves in privilege … was also flawed. [The lawyers] could redact any genuinely privileged entries in the usual manner; just as they had when they prepared the oral proffers.”
- What about any threat of civil litigation against XYZ? In the course of their employees’ lengthy interviews there was mention of civil proceedings, but this did not create a freestanding reason justifying the extension of privilege to unrelated parts of the interviews concerning the criminal claims: it was clear that the interviews had been conducted with the express purpose of providing advice to XYZ in relation to the bribery investigation. While their lawyers had advised XYZ on a civil claim against it and had provided advice in that context, the Court was clear that “[i]f there is any part of the interview notes which cover an unrelated (ie non-criminal) piece of civil litigation then, of course, it is severable and irrelevant to the present proceedings and can be redacted in the normal way.”
- What about the oral proffers? When these were made, XYZ’s lawyers repeatedly stated that they were not waiving privilege. It inevitably followed that the summaries contained material over which XYZ Ltd asserted privilege. Accordingly, the proffering of these summaries amounted to a waiver and (prima facie) this opened the door to disclosure of the underlying interview notes. While accepting the case law that privilege may be waived for a limited purpose, the Court said this did not avail the company. The only argument available to XYZ was that the waiver was for a limited purpose i.e. the exclusive use of the SFO only. However, the flaw in this argument is that there was no evidence that the SFO considered whether any waiver was for a limited purpose:
“Not only has the SFO not raised this argument but we would have difficulties with it, were it to be raised. When the oral proffers were made XYZ… knew (or must have known): (i) that it had already submitted a document to the SFO which was inculpatory of the defendants; (ii) that the oral proffers were being made to further the SFO’s investigation into the defendants; (iii) that it was a very real possibility/likelihood that the defendants would be prosecuted; (iv) that there was a real possibility/likelihood that the summaries would be provided by way of disclosure to the defendants and (v) that the proffers were of material that XYZ was asserting privilege over. Even if we were to accept that the waiver was for a limited purpose we do not see how that limited purpose would not have included transmission of the underlying documents to the defendants since this was squarely in contemplation and was an integral part of the process being undertaken.”
Where does this leave us?
While this is a very important decision about the role of the SFO (and by analogy other prosecution authorities) in relation to an entity’s duty of co-operation pursuant to a DPA, its immediate relevance is the way in which the Court sought to shut off escape routes against the creation of privileged materials when a company seeks to investigate issues affecting it which might lead to criminal prosecution. While its holdings on these points must be obiter as they followed its ruling that the Court did not have jurisdiction to deal with them in the context of a judicial review, it will be a brave Crown Court Judge who does not follow them. Furthermore, it will only embolden the SFO - and other regulators - to challenge claims to privilege in analogous circumstances.
And just where does this leave the ENRC appeal? It is disappointing that both XYZ and Jukes have opined on key issues being raised in that appeal, but without the benefit of full argument on the underlying policy considerations. To pray in aid, as the Court did here, the House of Lords decision in Three Rivers (No 6), is truly surprising. We must hope that the Court of Appeal in ENRC seizes the chance to grapple with these issues in much more detail. If not, the profession will have to hope this case can somehow make it to the Supreme Court - something that is presently a long way off.
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