Update: Permission to appeal the decision in Director of the SFO v ENRC was granted on 02 October 2017. We will publish further updates as the appeal proceeds.
The question of what documents generated in an internal investigation will be protected by some form of privilege has long been a vexed one. The Serious Fraud Office (SFO) has made three things clear:
- that co-operation with an SFO investigation “will include identifying relevant witnesses, disclosing their accounts and the documents shown to them” - this is in the SFO’s guidance on Deferred Prosecution Agreements
- that it will view as a mark of greater co-operation the provision by a company to the SFO of documents over which the company could have claimed privilege, and
- the SFO will “view as uncooperative false or exaggerated claims of privilege, and we are prepared to litigate over them: to do otherwise would be to fail in our duty to investigate crime” - this was how the SFO’s General Counsel Alun Milford put it in March 2016.
The SFO has been as good as its word on this last point and judgment has now been handed down in the most extensive challenge to privilege brought by the SFO to date: Director of the SFO v Eurasian Natural Resources Corporation Limited.
The ENRC decision represents a further attack on privilege, and potentially gives rise to real issues for those involved in investigations. In brief, the primary areas which may cause concern are:
- interview notes are not protected by legal advice privilege
- there is a high bar for litigation privilege being available, particularly in the context of criminal investigations
- a criminal investigation by the SFO should not be treated as adversarial litigation until proceedings have been issued
- there was no privilege in reports prepared by ENRC’s solicitors which were generated as part of a fact-finding exercise, and
- whether any employee, including in-house counsel, has the relevant authority, such that their communications with external counsel qualify for privilege, is a question of fact to be determined on the evidence in any given case.
As part of a long-running investigation into ENRC and its subsidiaries, the SFO sought a declaration that certain documents generated by solicitors and forensic accountants during the course of investigations were not subject to legal professional privilege. Dialogue between the SFO and ENRC had begun in 2011 as part of a self-reporting process. A criminal investigation then began in late April 2013, relating to the activities of ENRC and focused on allegations of bribery and corruption in two overseas jurisdictions.
The documents sought by the SFO included interview notes taken by ENRC’s solicitors, Dechert, reports and other materials generated by forensic accountants as part of a “books and records” review, and records of the factual evidence given by a partner at Dechert to ENRC’s senior management.
ENRC argued that the disputed documents were covered by litigation privilege, legal advice privilege, or both. Its case was that the interviews and other investigative steps had been taken with the dominant purpose of enabling ENRC to gather information and give instructions in contemplation of adversarial (criminal) litigation, and/or to enable Dechert to provide it with legal advice.
The decision sets a high bar for the availability of litigation privilege in the context of a criminal investigation. ENRC’s claim for litigation privilege was rejected on a number of grounds:
- The court rejected ENRC’s submission that a criminal investigation by the SFO should be treated as adversarial litigation.
- ENRC was also unable to satisfy the requirement of showing that litigation with the SFO was “a real likelihood rather than a mere possibility”. It is well-established that a party claiming litigation privilege must show that it was “more likely than not” that litigation (ie here, an SFO prosecution) would ensue. Anticipation that an SFO investigation was imminent and receipt of a letter from the SFO was held to be not enough to make out a claim for litigation privilege:
“The reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of a prosecution.”
Although the test as to whether litigation is reasonably in prospect (ie more likely than not to ensue) is an objective one, the court observed that these are all matters of evidence, and it had not seen any evidence as to what was contemplated by ENRC during the relevant period, and certainly no evidence that it considered a criminal prosecution to be “more likely than not”. Given that a prosecution will only be brought when there is sufficient evidence to provide a realistic prospect of conviction, most companies will be wary of doing anything that appears to accept that a criminal prosecution, rather than just investigation, is more likely than not.
- Litigation privilege may arise later in criminal cases than in the civil context, given that civil proceedings can be commenced with little or no grounds whereas a criminal prosecutor must first satisfy itself that there is sufficient evidential basis to prosecute, and a public interest in doing so.
- Even if the criminal prosecution had been in ENRC’s reasonable contemplation, none of the documents in question were created for the dominant purpose of deployment in, or obtaining legal advice in relation to, anticipated proceedings. Rather, the primary purpose was to fact-find (and, as required, then to decide what steps to take in reaction to those findings). The books and records review was primarily focused upon “compliance and remediation”; identifying issues in anticipation of a potential investigation is not the same as preparing for the conduct of adversarial litigation, or seeking advice thereon.
- The court also noted that litigation privilege cannot apply to documents created to provide to the other side, so that documents created specifically for the purpose of persuading the SFO to engage in a civil settlement rather than to prosecute, in the context of a collaborative relationship, cannot be subject to privilege.
Legal advice privilege
Uncomfortable though it may feel to those involved at an early stage in investigating issues which may give rise to a claim, the court firmly rejected the suggestion that privilege attaches to documents produced as part of a fact-finding exercise, even where that exercise is carried out or directed by a lawyer.
- following the approach taken in Stax and also in the RBS Rights Issue Litigation, Andrews J made it clear that lawyers’ working papers would only be protected by privilege where they betray the tenor of the legal advice (see our elexica article here on the decision in the RBS Rights Issue Litigation)
- ENRC’s interview notes were not covered by legal advice privilege. Verbatim notes of interviews would not, without some evidence that the notes gave some clue to legal advice, be privileged simply because a legal advisor took the note
- there must be evidence of sufficient legal input in a lawyer’s work product to justify a claim to privilege.
- in contrast, where documents form part of preparatory work to compile information (even where the ultimate purpose of the exercise may be to seek or to give legal advice), these will not be privileged. On that basis:
- materials and slides prepared by Dechert, ENRC’s solicitors, to present to ENRC’s board were privileged because they were setting out their factual findings in the context of instructions to give consequential legal advice, but
- there was no privilege otherwise in the solicitors’ underlying reports or fact-findings:
“… any Dechert report of its investigation into Africa and the underlying materials used by Mr Gerrard and his colleagues to produce it will not be privileged; the privilege extends only to what he said to his client at the meeting(s) in March 2013 at which that slide presentation was made and any record of what he said on that occasion.”
The court also considered the question of who qualified as the “client” for the purposes of obtaining legal advice. Andrews J supported Hildyard J’s analysis in the RBS Rights Issue Litigation concerning the directing mind and will of a corporation, emphasising the principle that legal advice privilege only attaches to communications with those within a corporate entity who are expressly or impliedly tasked with obtaining advice on its behalf. The fact that an employee is authorised to communicate with his or her corporate employer’s lawyer does not necessarily mean that he or she is authorised to obtain legal advice on the client’s behalf.
Andrews J appears to reject the assumption that an in house legal advisor automatically has the requisite authority for his or her communications to qualify for legal advice privilege, noting that it is a question of fact in each case. She noted that:
“In a case where the client is a corporate body, one would expect the requisite authority to obtain legal advice on the company’s behalf to be vested in the Board of Directors, although they might well delegate authority to another group or person. It might also be persuasively argued that the company’s in-house lawyers or general counsel would have the necessary authority, by virtue of that office, to seek and obtain legal advice from external lawyers on behalf of the company. Whether they, or any other individual employee or group of employees had such authority in the given case, is a question of fact to be determined on the evidence.” (emphasis added)
Exchanges between external lawyers and the “Head of Mergers and Acquisitions” with ENRC were held not to be subject to privilege, for example. Although he was a qualified lawyer and had been responsible for the group’s legal affairs until several years prior to the relevant exchange, he was communicating as a “man of business”.
What this means
This decision makes the process of conducting internal investigations even more challenging. In the context of potential criminal wrongdoing, this judgment means that privilege will only arise at the point that criminal proceedings, rather than a criminal investigation, becomes more likely than not. Even then, privilege will only attach to communications for the purpose of conducting adversarial litigation, not, for example, advice on how to avoid it.
Permission to appeal was refused, but we consider it likely that permission will be granted by the Court of Appeal simply because of the importance of these issues. A decision by the Supreme Court may eventually result, but there is unlikely to be a leapfrog procedure straight to that court because of the breadth of issues involved.
In the meantime (and the wait could be long) this decision once again reinforces the need to identify who within a corporate entity has the requisite authority to obtain legal advice on behalf of the corporate, and to set clear lines of communication both internally and externally.
In addition, parties should have in mind the potential for future proceedings when investigating matters, whether internally or using external advisors, and ensure that any consideration of those potential disputes is clearly recorded. Andrews J made it clear in relation to ENRC that these are questions of evidence, and a party claiming litigation privilege needs to be able to show the court that they were anticipating (or reasonably contemplating) civil or criminal litigation at the relevant time.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.