Court of Appeal upholds ENRC’s claim to litigation privilege
SFO v ENRC
On 5th September 2018, the Court of Appeal handed down an important judgment concerning the issue of litigation privilege. The decision provides clarity to regulatory lawyers engaged in advising clients before a prosecution ensues or is confirmed by a regulatory body. In essence, the Court of Appeal has reversed the controversial decision of the High Court in the case of Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited (ENRC v SFO) 2017.
The defendant, ENRC, had asserted that certain documents generated during investigations into its activities by its solicitors and forensic accountants were the subject of legal advice privilege and/or litigation privilege. The documents related to fraudulent practices allegedly committed in Kazakhstan and Africa, which had been notified to ENRC by a whistle-blower, and included notes made by ENRC’s outside solicitors of some 184 interviews (including with its current and former employees). The Director of the SFO claimed declarations that the documents were not the subject of legal professional privilege.
Last year in the High Court, Mrs Justice Andrews found that the documents were not protected by privilege due to the fact that, when they were created, criminal legal proceedings were not reasonably in contemplation. The High Court stated that where a document was created for the dominant purpose of ‘investigating or recording facts’, as opposed to the dominant purpose of ‘conducting or advising on the conduct of litigation’, a claim for litigation privilege could fail. This judgment caused widespread concern within the legal community.
Court of Appeal decision
The Court of Appeal upheld ENRC's claim to litigation privilege over the majority of the documents in question and found that criminal proceedings against ENRC were reasonably in contemplation when it initiated its investigation in April 2011.
Contemporaneous evidence submitted by ENRC showed that, as at 19 August 2011, ENRC was ‘aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility’. The Court of Appeal stated it was ‘not sure’ that ‘every SFO manifestation of concern would properly be regarded as adversarial litigation’, or that it ‘necessarily followed that once a SFO criminal investigation is reasonably in contemplation, so too is a criminal prosecution’. Each case will of course turn on its facts.
The Court of Appeal stated it ‘was not right to suggest a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken’. The fact that a formal investigation has not commenced will be a consideration but not necessarily be determinative.
The Court of Appeal held that Mrs Justice Andrews was wrong to find that ENRC's dominant purpose was compliance and governance. The need to investigate corruption allegations was just one factor of the dominant purpose of defending contemplated proceedings. The judge was equally wrong to find that ENRC had intended to (or agreed to) share materials from the internal investigation with the SFO as part of a 'self-reporting' process, or that participation in such a process precludes the application of litigation privilege.
The Court of Appeal has therefore confirmed that litigation privilege would be engaged whenever the circumstances of a case are such that “there is a clear threat of a criminal investigation”.
Legal Advice Privilege
It should be noted that Legal Advice Privilege only protects those communications between the legal adviser and employees of the client authorised to seek and receive such legal advice (i.e. ‘the client’). ENRC did try to persuade the Court of Appeal to clarify its 2003 decision in Three Rivers (No. 5), which applied a narrow interpretation of ‘client’. The Court of Appeal decided that this question fell beyond the scope of the present appeal and that it would, in any event, require final determination by the Supreme Court. However they did indicate that, had it been open to them, they would have been in favour of adopting a wider interpretation of ‘client’.
Internal investigations conducted by companies and insurers are not privileged unless they are conducted on the advice of their legal advisors in anticipation of civil and/or criminal proceedings. It is therefore imperative that early legal advice is sought to ensure privilege is retained.