Privilege and internal investigations: what next for practitioners after ENRC?
Writing earlier in 2018, I commented on the inconsistency of approach between two recent cases to consider legal professional privilege: Andrews J’s decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd, and that of Sir Geoffrey Vos in Bilta (UK) Ltd (in liquidation) & others v Royal Bank of Scotland Plc & another. The Court of Appeal recently decided the appeal in ENRC, and given that Sir Geoffrey Vos was on the bench, it will come as no surprise that it is Bilta that finds itself on the right side of history.
The Court of Appeal’s judgment provides welcome relief from the very restrictive view of privilege that was taken in ENRC at first instance, and contains a great deal of helpful guidance as to when privilege will attach to documents prepared as part of an internal investigation.
In December 2010, ENRC were tipped off by a whistleblower about possible corruption and criminal conduct at their Kazakh subsidiary. ENRC instructed solicitors and forensic accountants to carry out an internal investigation. By April 2011, the allegations were public knowledge, and there were calls for an investigation by the SFO.
The Serious Fraud Office (SFO) contacted ENRC in August 2011, noting the allegations and inviting ENRC to consider the SFO’s own self-reporting guidelines. There followed a protracted course of correspondence between the SFO and ENRC, which culminated in the SFO commencing a formal investigation in March 2013.
As part of its investigation, the SFO requested documents produced by ENRC in the course of its internal investigation. In particular, the SFO sought inspection of the following four categories of documents:
- Notes of evidence received by solicitors in interviews with witnesses.
- Notes of a “books and records” review carried out by the forensic accountants.
- Documents prepared by solicitors setting out the factual evidence for presentation to the ENRC board.
- Email communications between ENRC and a Swiss-qualified lawyer concerning the allegations.
ENRC refused to produce these documents, asserting litigation privilege or legal advice privilege. The SFO sought declarations from the court that the documents were not privileged.
At first instance, Andrews J agreed with the SFO that documents in the first, second and fourth categories were not protected by privilege. She found that litigation privilege did not apply at all, for the following reasons:
- At the time the documents were created, litigation was not reasonably in contemplation. The SFO’s investigation was, Andrews J held, an inquisitorial process rather than an adversarial one, and in that context privilege did not attach.
- The documents had not been prepared for the sole or dominant purpose of use in litigation. Solicitors had simply been setting out to discover the facts and report them to the board, to enable ENRC to deal with its regulatory and compliance obligations.
- Furthermore, applying the Australian case of Bailey v Beagle Management Pty Ltd, Andrews J held that documents that had been prepared with the intention of being shown to the other side could not attract litigation privilege; their purpose was to avoid litigation. As the investigation had been carried out with the intention of sharing the findings with the SFO, it (and any working papers) were not protected by privilege.
As to advice privilege:
- Applying Three Rivers (No. 5), information received from witnesses was not information from “the true client”, that is, those authorised to receive legal advice on behalf of ENRC. Accordingly, the first category of documents were not privileged.
- The factual updates to the board (the third category of documents) were, by contrast, part of the course of communication between solicitors and their true client. They were, accordingly, protected by legal advice privilege.
- The Swiss-qualified lawyer had not been acting in his capacity as such but had been giving general business advice, and therefore the fourth category of documents were not protected by legal advice privilege.
The Court of Appeal decision
The Court of Appeal regarded the case as being principally concerned with litigation privilege, and focussed its reasoning on that issue. ENRC’s appeal was upheld, for the following reasons:
- As to whether litigation was reasonably in contemplation, the Court of Appeal took the rare step of reversing Andrews J’s factual finding. It found that there was ample evidence that criminal proceedings were in contemplation from the date of the SFO’s August 2011 letter, holding that “the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement.”
- As to the dominant purpose for which the documents were created, the Court of Appeal disagreed with Andrews J’s conclusions. Although ENRC’s regulatory and compliance obligations may have formed part of the reason for the internal investigation, those obligations could ultimately be enforced by criminal proceedings. Where an investigation was undertaken in that context, the dominant purpose may be (and was in this case) to prevent or deal with litigation.
- The Court of Appeal also rejected the judge’s factual finding that the documents had been prepared with the intention that they be shared with the SFO. While ENRC had committed to make “full and frank disclosure” and to share the findings of its investigation, it had not intended to share all of the work product leading to that report.
The Court of Appeal judgment touches on three important issues of principle, and its guidance in all three areas is to be welcomed.
First, the court rejected the distinction drawn between criminal and civil proceedings. Andrews J at first instance said that, because criminal prosecution is subject to a threshold test, criminal litigation cannot be said to be reasonably in contemplation until the investigator has a sufficient evidential basis to commence proceedings. Such a distinction was described by the Court of Appeal as “illusory”, it being clear on the facts that there was an “extremely serious” threat of criminal prosecution.
Secondly, the Court of Appeal rejected the Australian law principle applied by Andrews J, that documents created to show to the other side could not attract litigation privilege. This was described as “the wrong starting point.” As the Court of Appeal observed, there will frequently be occasions where work on documents to be shown to the other side will attract privilege; for example, work carried out in formulating a detailed response to a claim to be put in correspondence.
Thirdly, and perhaps most importantly, the Court of Appeal recognised that companies should be encouraged to conduct internal investigations as early as possible. At paragraph 116, the court said:
“It is, however, obviously in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists, prior to going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege for the work product and consequences of their investigation. Were they to do so, the temptation might well be not to investigate at all, for fear of being forced to reveal what had been uncovered whatever might be agreed (or not agreed) with a prosecuting authority.”
The Court of Appeal’s affirmation of this (clearly correct) principle will likely be of considerable assistance to those seeking to protect the content of internal investigations through litigation privilege.
Legal advice privilege
Given its conclusion on litigation privilege, the Court of Appeal was not strictly required to decide the issue of advice privilege. It did however elect to express a view on the arguments raised.
The Court of Appeal explained that Three Rivers (No. 5) decided that “communications between an employee of a corporation and the corporation’s lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client.”
The court was highly critical of the decision, expressing the view that its derivation from 19th century authority left it out of step with the realities of litigation involving large national or multinational corporations. It also noted the inconsistency of the English position with other common law jurisdictions.
However, ultimately it did not consider that it would have been open to depart from Three Rivers (No. 5), and that such a development must be left to Parliament or the Supreme Court.
On the facts of ENRC, the Court of Appeal upheld the judge’s decision that information received from witnesses (the category 1 documents) would not attract legal advice privilege.
As well as providing much food for thought for academic lawyers, a number of important practical points arise from ENRC:
- Consider the “dominant purpose”. Certainly, the Court of Appeal’s decision signals a much broader approach to litigation privilege as applied to internal investigations. It would however be a mistake to read ENRC as providing a blanket extension of privilege to all documents created as part of such an investigation. It remains the case that the “dominant purpose” of the communication must be for litigation. Internal investigations, even those undertaken by solicitors, will not attract privilege if undertaken simply to allow the company to understand its own position, or where it would have had to be undertaken anyway for other purposes; see, for example Waugh v British Railways Board.
- If litigation (criminal or civil) is in contemplation, document that fact. While not conclusive, a contemporaneous record that litigation is in contemplation may assist in establishing that privilege attaches. A record that ENRC had received advice to that effect was treated as persuasive by the Court of Appeal in ENRC.
- Ensure information exchanged with solicitors is provided by individuals authorised to seek legal advice. While the Court of Appeal in ENRC gave a clear indication of its view that Three Rivers (No. 5) ought to be overturned, it was equally clear that it was not for them to do so. For now, the position remains that information received from employees other than those authorised to receive legal advice will not attract legal advice privilege. Had such information not been subject to litigation privilege in ENRC, it would have been disclosable.
This article was first published on Practical Law’s Dispute Resolution Blog.
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