On 5 September 2018, the Court of Appeal re-enforced privilege as a cornerstone of a company’s protections in relation to internal investigations in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation.This article considers the case and its practical implications, including continuing limitations on privilege and the pitfalls to avoid.
Eurasian Natural Resources Corporation (ENRC), a company in the extractives and mining sector, received a whistle-blowing report in December 2010 alleging that corrupt activities were taking place in its subsidiaries in Kazakhstan and Africa. ENRC instructed solicitors to investigate these allegations and subsequently instructed the accountants, Forensic Risk Alliance (FRA), to review its books and records and conduct a governance review.
The investigation appeared to give rise to material concerns, and ENRC and the Serious Fraud Office (SFO) entered into a dialogue in August 2011 regarding a potential self-reporting process. The dialogue eventually broke down after a series of delays and the SFO launched a formal investigation into ENRC in April 2013. As part of this investigation, the SFO used its powers under s2 of the Criminal Justice Act 1987 to compel the production of documents relating to ENRC’s internal investigation, including ENRC’s lawyers’ notes of interviews with ENRC’s employees (so called first accounts), and reports produced by FRA.
ENRC withheld the above documents on the grounds that legal advice privilege or litigation privilege applied.
ENRC’s claims were roundly rejected at first instance in the High Court on the basis that the investigation itself was viewed by the Court as a fact-finding exercise, the notes of interviews were considered insufficiently connected to legal advice (and did not include legal advice) and the judge came to the conclusion that litigation was not in fact contemplated.
The Court of Appeal’s findingsThe judgment at first instance was challenged and the Court of Appeal found overwhelmingly in ENRC’s favour, concluding that litigation privilege applied to all the relevant documents, including FRA’s documents and notes of interviews.
The Court provided its views on both litigation privilege and, to a lesser extent, legal advice privilege, both of which are set out below with the related practical implications for companies undertaking an internal investigation.
Litigation privilege findings
Changing recent understanding of litigation privilege (and reverting to a more familiar position to many experienced litigators), the Court of Appeal revealed that the threshold for litigation to be ‘reasonably in contemplation’ in internal investigations is relatively low. In this regard, the Court gave the following reasons:
- It is in the public interest that companies should investigate allegations of wrongdoing prior to engaging with a prosecutor, without losing the benefit of privilege.
- Litigation can reasonably be in contemplation before a company knows the full details of what is likely to be unearthed in its internal investigations or a decision to prosecute has been taken.
- Uncertainty as to whether or not proceedings are likely does not prevent litigation being reasonably in contemplation while conducting an internal investigation.
Applying the law to the facts
Applying this legal rationale to the case, the Court of Appeal found that criminal proceedings had been reasonably in contemplation by ENRC from April 2011 onwards. This was four months after the whistle-blowing report was made in December 2010 and the internal investigation was established, but four months before ENRC was first contacted by the SFO. The Court of Appeal considered the following factors to be material in making this finding of fact:
- media reports arose in April 2011 regarding an MP who raised questions in Parliament about ENRC and wrote to the SFO to ask it to investigate ENRC;
- emails between ENRC and its legal and compliance advisers referred to increasing concerns about SFO action in March and April 2011; and
- the scope of the investigation broadened to include the review by FRA of ENRC’s books and records at the same time.
The Court further found that the relevant documents were created for the ‘dominant purpose’ of the contemplated proceedings, given the overarching threat of criminal prosecution that exists in the UK where allegations of wrongdoing arise.
Litigation privilege: practical implicationsIn relation to the general applicability of the ENRC decision, although litigation privilege may much more easily be claimed in relation to internal investigations than had been thought, the decision in ENRC does not provide a blanket defence that all documents created during an internal investigation are privileged.
The initiation of an internal investigation, even where the client has taken the significant step of calling in external lawyers specialising in corporate crime, will not necessarily be sufficient to cloak all work in litigation privilege from the start. All the factors must be taken into account and to best advise clients, counsel should consider assessing the likelihood of litigation at regular intervals throughout an internal investigation and act accordingly.
Legal advice privilege findingsThe Court of Appeal did not need to consider the claims to legal advice privilege as they found all documents in question were protected by litigation privilege. However, the Court made some strong (but non-binding) criticisms of the current narrow definition of the ‘client’ for legal advice privilege purposes, observing that the definition of the ‘client’ should be expanded to include all employees of a company who engage with its legal advisers as part of an investigation to reflect the realities of corporate life in a larger company. Nevertheless, the Court of Appeal concluded that it is only the Supreme Court that could reconsider the current law.
Legal advice privilege: practical implicationsAs a result, as regards claims for legal advice privilege, companies must still be cautious during internal investigations to manage carefully so-called ‘need-to-know lists’, strictly limit the circulation of sensitive documents and identify the ‘clients’ within the entity at an early stage. In-house counsel may also have to remind US and other non-UK counsel of this continued significant difference in practice relating to legal advice privilege in the UK and the US or Commonwealth jurisdictions.
Further practical implicationsFinally, while the ENRC judgment has been hailed as a victory for privilege, corporates should not lose sight of the fact that it may only be of real significance to those with an appetite to fight the SFO, as ENRC did.
Deferred prosecution agreements (DPAs) are increasingly sought by corporates to avoid the uncertainty, risk and brand damage of criminal prosecution. DPAs require a high level of co-operation from corporates with the SFO, including an obligation to provide full and frank disclosure. This has led some companies to voluntarily disclose potentially privileged material to gain further credit for co-operation. Therefore, corporates and their advisers should bear in mind that even when creating documents that are now indisputably privileged, those documents may still eventually be provided to the SFO. Consequently, sensitive documents should only be created when necessary, drafted carefully and precisely, and with the above additional readership in mind.