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James Green: Privilege in Investigations Following the Director of the Serious Fraud Office v Eurasian Natural Resources Corporation

The scope of legal professional privilege has been in the (legal) headlines twice in recent months. First, the EAT will have made some employment lawyers nervous when it appeared to widen the scope of the iniquity exception in X v Y [2018] UKEAT/0261/17 (see Daniel Tatton-Brown QC’s analysis here). Now, the Court of Appeal has delivered a judgment in SFO v ENRC that will help soothe those nerves, powerfully overturning a decision of the High Court that restricted the scope of litigation privilege.

The facts
ENRC is part of a multinational group of companies operating in the mining and natural resources sector. In 2010 it became aware of allegations of criminality on the part of certain African companies that it was seeking to acquire. It separately received an email from an alleged whistle-blower alleging corruption and financial wrongdoing within a wholly-owned subsidiary in Kazakhstan.

It was clear that ENRC’s audit committee took the risk posed by these allegations seriously. It instructed forensic accountants to undertake a full books and records review and engaged solicitors to investigate the various allegations. The solicitors’ investigation included interviews with a large number of employees.

The SFO contacted ENRC in August 2011, inviting them to consider carefully the SFO’s Self-Reporting Guidelines whilst undertaking its internal investigations, which would improve the possibility of a civil rather than criminal outcome. Several meetings were held between the parties, during which ENRC gave assurances that its investigations were pressing ahead and that it was committed to report fully to the SFO in due course.

Ultimately, the SFO apparently lost patience and in April 2013 announced that it was undertaking a criminal investigation into ENRC. ENRC asserted that the documents generated during its investigations were the subject of litigation privilege and/or legal advice privilege, and the SFO sought declarations to the contrary.

The judgment of the High Court
Andrews J robustly rejected ENRC’s arguments regarding both litigation privilege and legal advice privilege in respect of almost every disputed document:

Litigation privilege

• Reasonable contemplation of the parties: the judge held that, on the facts, no more than an SFO investigation (rather than a prosecution) was in the reasonable contemplation of ENRC when it conducted its own investigations, and this was insufficient to attract litigation privilege.
• Dominant purpose: Furthermore, documents brought into existence for the purpose of settling litigation, which are intended to be shown to the other side, could not attract litigation privilege. The same reasoning applied to documents created in order to obtain legal advice as to how best to avoid contemplated litigation. In any event, a large number of the documents had been created for compliance purposes and not as part of a possible defence brief.

Legal advice privilege

• Following the decision of the Court of Appeal in Three Rivers District Council v Governor and Company of the Bank of England (No 5) [2003] QB 1556, legal advice privilege attached only to communications between lawyer and “client”. In the case of a corporate entity, this only applied to individuals who were authorised to obtain legal advice on that entity’s behalf, and not communications between the lawyer and other employees. Accordingly, the interviews with employees conducted during ENRC’s investigations could not attract legal advice privilege.

The Court of Appeal judgment
The Court of Appeal forcefully rejected the High Court’s assessment of the facts and provided helpful guidance on the law.

• First, the judge was wrong to conclude on the facts that a criminal prosecution was not reasonably in contemplation once the SFO had contacted ENRC in August 2011. Indeed, the whole subtext of the relationship was the possibility of prosecution if the self-reporting process did not result in a civil settlement.
• Second, as to the “dominant purpose” test, the Court flatly rejected the idea that legal advice given to head off, avoid or even settle reasonably contemplated proceedings was not protected by litigation privilege.
• Third, where a prosecution was reasonably in contemplation, the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation. The dual purpose of compliance did not undermine or preclude litigation privilege.  

The Court carefully explained why it would only be appropriate for the Supreme Court to re-examine Three Rivers (No 5). However, it made clear (on a strictly obiter basis) that it favoured a more pragmatic approach: large corporations, just as much as small corporations and individuals, need to seek and obtain legal advice without fear of intrusion. Had it been open to the Court depart from Three Rivers (No 5), it would have done so.

Analysis
The headline for companies instructing lawyers in similar investigations will be that they can breathe a sigh of relief. The Court of Appeal was clearly unmoved by the SFO’s argument a hard distinction should be drawn between its self-reporting regime and the threat of prosecution lurking beneath. This pragmatic view of the scope of litigation privilege is welcome. As the Court noted, it is clearly in the public interest that companies in a similar situation should be prepared to investigate allegations from whistle-blowers or investigative journalists, prior to going to a prosecutor such as the SFO. Without the benefit of legal professional privilege, any decision to do so would be fraught with danger.

Similarly, the pragmatic view of legal advice privilege in large corporations will be welcomed by practitioners, and the Court’s careful analysis will no doubt furnish many a skeleton argument going forwards. However, it is not clear that the case is being appealed to the Supreme Court, and it may be some time before this approach actually finds purchase. For the time being, larger entities conducting investigations should keep one eye on litigation privilege if they want to stay protected.

Article written by James Green.