Celebrated as a big win for legal professional privilege, what difference will the Court of Appeal decision in Director of the SFO v ENRC make in practice?
The question of what documents generated during an internal investigation will attract legal professional privilege has for a long time been a vexed one.
The Court of Appeal’s decision in Director of the SFO v ENRC is undoubtedly a major development for privilege in England and Wales. The Court’s reversal of the first instance decision was widely celebrated by lawyers and clients alike. But now the party poppers have been popped, where does the decision actually leave those conducting investigations?
The case arose out of claims to privilege made by ENRC over various classes of documents generated during its investigation into allegations of fraud at some of its subsidiaries. The SFO contested those claims to privilege and at first instance obtained declarations from the court that all but one category were not covered by either legal advice privilege or litigation privilege. For more on the factual background, see our article Privilege and Investigations: The ENRC case.
Legal Advice Privilege
During an internal investigation, those in charge of the investigation will communicate with lawyers, internal or external, to provide information and receive advice. Those communications will attract legal advice privilege (LAP). However, that extends only to communications between lawyers and those within the company authorised to instruct them, in accordance with the case of Three Rivers (No.5). That is likely to be a very narrow group of employees. The company’s lawyers will inevitably need to interview other employees to establish what has occurred and this is where the difficulty arises. Notes of those interviews will not attract LAP, even though the communications are for the purposes of seeking legal advice.
Lawyers for ENRC and the Law Society, which was permitted to intervene in the case, argued that Three Rivers (No.5) was being too narrowly construed, and that, properly understood, it allowed LAP to apply to communications with a far wider group of employees. The Court declined to reach a decision on this, because the issues before it could be resolved by determining issues relating to litigation privilege and it was in any event bound by Three Rivers (No.5) as a previous authority of the Court of Appeal. However, it stated that had it needed to decide this point, it would have determined that Three Rivers (No.5) did indeed decide that communications between a company’s lawyers and its employees would not attract LAP unless the employees “were tasked with seeking and receiving legal advice”.
Tantalisingly, the Court went on to say that this position is unsatisfactory, making it very difficult for larger companies to seek and obtain legal advice “without fear of intrusion”. The judges noted that
“If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice.”
They concluded that if it had been open to them to depart from Three Rivers (No.5), they would have done, but that this remains a matter for the Supreme Court alone. For now, there is no change to the constraints upon LAP.
There was better news on litigation privilege. This can apply to communications between either client or lawyer with a third person, as long as the dominant purpose of the communication is current or anticipated litigation. Notes of interviews with employees created during an investigation will therefore attract litigation privilege as long as the dominant purpose of the interview is to prepare for contemplated adversarial proceedings.
In the first instance ENRC decision, Andrews J drew a distinction between contemplated civil proceedings and criminal proceedings. She noted that civil proceedings can be commenced even if meritless, while for a criminal prosecution to be brought there must be sufficient evidence to provide a realistic prospect of conviction. In her view that meant that a criminal prosecution could not be in contemplation before a company had seen sufficient evidence of criminal wrongdoing.
The Court of Appeal disagreed, noting that while an individual will know whether they have committed a crime, a company does not until it has established the actions of its employees. The Court made clear that a company can be investigating for the dominant purpose of preparing for adversarial proceedings long before a prosecution is brought or the company sees sufficient evidence to conclude a prosecution will be brought.
Andrews J had also concluded that documents prepared to avoid a prosecution were not prepared for contemplated proceedings. This meant that if the company’s dominant purpose was to prepare a self-report to the SFO and negotiate a civil outcome to avoid a criminal prosecution, documents created in that process could not attract litigation privilege. Again, the Court of Appeal disagreed, noting that communications about making a settlement approach in civil litigation have always been covered by litigation privilege.
A matter of fact
This is all undoubtedly good news. Where a company is investigating an allegation of criminal wrongdoing, regardless of whether it intends to self-report or not, documents created in the investigation can be for the dominant purpose of adversarial proceedings and thus attract litigation privilege. But the operative words here are “can be”.
The Court of Appeal spent a great deal of time examining the factual matrix in the case and took the unusual step of reversing some findings of fact at first instance, where these were based on documents or uncontested witness evidence. Whether communications will attract litigation privilege remains a highly fact-specific question. The Court was at pains to point out that it was not sure “every SFO manifestation of concern would properly be regarded as adversarial litigation”.
In ENRC, events were triggered by a whistleblower’s email and internal communications showed the company’s management expected a dawn raid by the SFO and a criminal investigation. Lawyers were instructed and steps taken to improve procedures with this in mind. While the SFO wrote to the company stating it was not conducting a criminal investigation at that stage, it pointed the company to the SFO guidelines on self-reporting, which made clear that no guarantee would ever be given that no prosecution would take place. As time passed and the company did not deliver a report to the SFO, the prosecutor made various statements indicating that a prosecution was likely if the self-reporting process failed. The Court concluded that the evidence pointed “towards the contemplation of a prosecution if the self-reporting process did not succeed in averting it” from the outset.
It is perhaps surprising that the Court was willing to find litigation privilege applied before the SFO had made any contact with the company, based solely on rumours of SFO interest and ENRC’s lawyers’ own analysis of the likelihood of a prosecution. However, what is clear from this is that the question of whether a company is acting in contemplation of a possible prosecution remains a matter of fact. Litigation privilege was successfully asserted in a competition investigation where the OFT had issued two “Statements of Objections” alleging infringements in Tesco Stores Limited & ors v Office of Fair Trading  CAT 6. In Bilta v Royal Bank of Scotland PLC and another litigation privilege was held to apply to documents created in a tax investigation where HMRC had written expressing an initial view that there were grounds to deny RBS’s input claim on the basis that it “knew or should have known that it was participating in a transaction connected to fraud”. These threatening noises from enforcement agencies, and the way in which the companies involved responded to them by gearing up for a dispute, were vital to the argument that adversarial proceedings were in contemplation.
A company asserting litigation privilege over investigation materials will need to adduce evidence to support its claim. Where there is no suggestion that the SFO or other authorities have any knowledge of the subject of the investigation, this may be more difficult. It is only of limited help that the Court in ENRC noted that the fact that a company may need to investigate before it can conclude whether a prosecution is likely does not prevent such proceedings being in reasonable contemplation. Any company conducting an internal investigation needs to consider carefully its prospects of showing that it had adversarial proceedings in contemplation and that these were the dominant purpose of the investigation. It will often be safest to proceed upon the assumption that while litigation privilege might be argued to apply, it cannot be assumed to apply.
Will we ever be rid of Three Rivers (No. 5)?
ENRC represented the best chance of overturning Three Rivers (No.5) in years and the obiter comments from the Court of Appeal are frustrating: the problems are clearly understood by senior members of the judiciary, but until a party takes a case to the Supreme Court, nothing can be done. Neither party in ENRC has any incentive to do that. The absence of any mechanism for the Court of Appeal to refer a matter of widespread public interest to the Supreme Court is a flaw in our common law system. Only when a party finds itself needing to argue this point and willing to foot the bill can the law move forwards.
Might a company that found itself unable to claim litigation privilege over notes of interviews with employees now consider asserting LAP instead? If it did and the SFO or any other prosecutor, regulator or litigant then took the point and sought a declaration that the documents were not privileged, the matter might be leap-frogged from the High Court to the Supreme Court. It will require the right case and a willing (and deep pocketed) company, however. For now, the position is at least more realistic for litigation privilege, but the Three Rivers (No 5) difficulties remain firmly in place.
Update: On 19 September we learnt that the SFO has applied for permission to appeal this decision, which is opposed by ENRC.
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