Erosion of privilege – Law Society seeks to intervene
08 January 2018
The Law Society is applying to intervene in the upcoming appeal of the landmark privilege decision in Serious Fraud Office (“SFO”) v Eurasian Natural Resources Corporation Limited (“ENRC”).
This High Court decision has been seen as seriously narrowing the scope of privilege as it applies to internal investigations into potentially criminal behaviour. In October 2017 ENRC obtained permission from the Court of Appeal to appeal the decision. The Law Society previously described the High Court decision as “alarming” and has now confirmed that it intends to seek permission to intervene in the appeal, to put forward arguments on behalf of solicitors against the High Court decision.
Summary of facts
In December 2010 ENRC received reports from a whistleblower regarding alleged bribery and financial wrongdoing in respect of its Kazakh subsidiary. ENRC instructed external lawyers to carry out an investigation into the allegations. In August 2011, the SFO contacted ENRC referring to press reports of the allegations, and suggested that ENRC might wish to avail itself of the SFO’s self-reporting guidelines. ENRC engaged with the SFO over approximately 18 months, meeting with the SFO and updating the SFO as to the progress of the internal investigation. In April 2013 the SFO stated that it had started a criminal investigation into ENRC. As part of the criminal investigation, the SFO sought to compel ENRC to disclose various categories of documents, which can be summarised as follows:
- Notes taken by the lawyers conducting the internal investigation of interviews they had with ENRC’s employees, and also former ENRC employees and ENRC’s suppliers (the “Interview Notes”);
- Materials generated by forensic accountants who were carrying out a ‘books and records’ review for ENRC with a focus on improving their systems;
- Documents produced by the lawyers and used to conduct a presentation to ENRC’s corporate governance committee and board (the “Presentation Materials”); and
- Emails between ENRC’s Head of Mergers & Acquisitions and a senior ENRC executive who was Swiss-qualified lawyer (the “Executive Emails”).
ENRC refused to disclose the four categories of documents on the basis that they were protected either by legal advice privilege, litigation privilege or both.
Legal advice privilege
Legal advice privilege applies to confidential communications between a client and its lawyers, acting in a professional capacity, in connection with the provision of legal advice. There is no need for litigation to be in contemplation.
Litigation privilege applies to communications between clients and their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation, where, at the time of the communication, the following conditions are satisfied:
- Litigation is in progress or reasonably in contemplation;
- The communications are made with the sole or dominant purpose of conducting that anticipated litigation; and
- The litigation must be adversarial, not investigative or inquisitorial.
High Court Decision
Mrs Justice Andrews rejected ENRC’s claim for litigation privilege across all the categories of documents, ruling that a criminal investigation by the SFO is not adversarial litigation for the purpose of privilege, but merely a preliminary step taken before any decision to prosecute is taken. The Court noted that “Criminal proceedings cannot be reasonably contemplated unless the prospective defendant knows enough about what the investigation is likely to unearth, or has unearthed, to appreciate that it is realistic to expect a prosecutor to be satisfied that it has enough material to stand a good chance of securing a conviction.”
The Court also held that, even if a prosecution had been reasonably in contemplation, the four categories of documents above were not created for the dominant purpose of being used in that litigation, but rather to enable ENRC to prepare for an investigation by a regulator or other investigatory body and to address any compliance issues before that investigation took place.
On legal advice privilege, the Court confirmed that on the question of ‘who is the client?’ it will continue to take a narrow view [See previous LS article on the RBS Rights Issue Litigation], endorsing the view that the ‘client’ will generally be limited to those actually instructing the lawyers and receiving advice from them (often the board). On that basis the Interview Notes could not be privileged; the interviewees were not the ‘client’. The Court also held that such notes could, in any event, only be privileged if they betrayed the trend of legal advice to be given; notes of interviews with witnesses which merely record information as part of preparatory work before such advice will not be privileged. The Court held that the Executive Emails had been sent to the Swiss-qualified lawyer as a ‘man of business’, not in any legal capacity, and were accordingly not privileged. The Court upheld ENRC’s claim to privilege in respect of the Presentation Materials, as they did contain legal advice given by the lawyers to ENRC’s board.
The Court accepted that it is now harder to claim litigation privilege in the criminal context than in respect of civil claims. With civil proceedings, there is no inhibition on claimants bringing such claims even where there is no properly arguable case (apart from possible later cost sanctions). As such, a person may reasonably contemplate such proceedings, even if they are unmeritorious, and thus litigation privilege may apply to relevant communications. With criminal proceedings, the bar is considerably higher. Companies who wish to instruct lawyers to carry out internal investigations into potential corrupt practices are now in a potential catch-22 position; documents relating to such investigations will only be protected by litigation privilege if the company is able to satisfy the Court that it was aware at the time of instigating the investigation of circumstances which could, to all extent and purposes, implicate the company in the wrongdoing which is the subject of the investigation.
This unhappy position is part of why the Law Society has seen fit to try to intervene in the appeal. The Law Society’s president has stated “If the ruling is upheld, it potentially has the perverse effect of discouraging firms from self-reporting for fear of the consequences.”
The appeal is expected to be heard on 3 July 2018.
To read the judgment click here.