Canada: Protecting Litigation Privilege In Corporate Criminal And Regulatory Investigations

In Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd, the UK High Court considered the Serious Fraud Office's (SFO) request for a declaration that litigation privilege did not protect documents generated as part of the defendant corporation's internal investigation. The High Court granted the SFO's request, compelling the defendant corporation to turn over findings on its employees offering bribes to foreign officials. In granting the request, the High Court held that the corporation could claim litigation privilege only if the corporation was aware of evidence that could support a criminal prosecution. Unless the corporation had this level of awareness, proceedings were not effectively "contemplated" to support litigation privilege. While the corporation faced a criminal investigation, this alone did not justify litigation privilege.

The English decision is at odds with the limited Canadian case law relating to litigation privilege, but nonetheless emphasizes the importance of the factual evidence in relation to the prerequisites for litigation privilege and importance of establishing strong claims to legal advice/solicitor-client privilege.

Background

Eurasian Natural Resources Corporation Ltd (ENRC) claimed litigation privilege over an internal investigation into allegations that employees of its subsidiaries had bribed foreign officials. The allegations, if proven, could lead to criminal penalties against the corporation under the Bribery Act, the UK equivalent of Canada's Corruption of Foreign Public Officials Act. The documents were primarily created before the SFO began its investigation in 2013, and included notes prepared by counsel of interviews with the corporation's employees. ENRC claimed litigation privilege over the documents after the SFO opened a criminal investigation and ordered ENRC to disclose its findings. ENRC's internal communications before and during the SFO's investigation indicated the corporation was confident that the allegations were unsubstantiated.

The High Court found that ENRC's confidence undermined its claim of litigation privilege. In Canada and the UK, two elements must be shown before litigation privilege will protect a document: (1) the document must be produced for the dominant purpose of preparing for litigation, and (2) the litigation must be actual or contemplated, which requires a reasonable prospect of litigation. In its decision, the High Court set new requirements for how these two elements are met in a criminal context in the UK.

In considering whether ENRC faced actual or contemplated litigation, the High Court held that a reasonable prospect of litigation hinged on whether ENRC thought there was sufficient evidence behind the allegations to result in a criminal prosecution. ENRC's confidence suggested a belief that the allegations were unfounded and prosecution was unlikely. Moreover, the internal investigation was not conducted for the dominant purpose of preparing for litigation, and in fact began more than a year prior to the SFO investigation. Instead, the documents were prepared in order to assess whether ENRC had committed any wrongdoing and to prepare the corporation for the SFO's criminal investigation.

In a civil matter, the High Court observed that a party can bring an action before it has gathered evidence in support of the action. Hence, a corporation can anticipate litigation without being aware of evidence indicating a cause of action has merit. However, in a criminal context, a prosecutor will only begin criminal proceedings after the prosecutor has evidence suggesting a reasonable likelihood of a conviction. Thus, to anticipate a criminal proceeding, the High Court reasoned that a corporation must be aware of evidence that would likely lead to a prosecution. Consequently, litigation privilege will not be warranted if a corporation merely anticipates a criminal investigation.

Canadian law conflicts with High court's decision

In Canada, there is limited case law on the question of litigation privilege before or during a corporate criminal investigation. However, case authority suggests that litigation privilege may be justified at the outset of an investigation:

  • In TransAlta v Market Surveillance Administrator, the Alberta Court of Appeal noted that severe penalties can follow an investigation into whether a corporation committed an offence. For that reason, the ABCA stated "there is an obvious need for [...] for the zone of privacy contemplated by litigation privilege" when a corporation faces a criminal or quasi-criminal investigation.
  • In Ontario (Minister of Labour) v Bruce Power Inc, 2007 CarswellOnt 9937, the Ontario Superior Court of Justice recognized that a report prepared before a regulatory prosecution was commenced respecting a serious workplace incident was protected by litigation privilege.
  • In R v Dunn, the Ontario Superior Court of Justice held that litigation privilege attached to notes taken by the corporation's lawyers during an internal investigation into possible fraudulent actions, which later resulted in criminal charges.
  • In R. (Canada) c Groupe SNC-Lavalin inc., the Quebec Superior Court upheld claims of litigation privilege and solicitor-client privilege over documents seized by the RCMP that were prepared by an internal audit team and an external audit firm for legal counsel so that legal counsel could provide legal advice to the company.
  • In Alberta v Suncor Energy, the Alberta Court of Queen's Bench held that a corporation's overlapping statutory duty to report on itself should not undermine its claim to litigation privilege when it also faces a regulatory investigation. If it did, the corporation's right to defend itself would be prejudiced. On appeal, the Crown conceded that the duty to report did not preclude claims of privilege. The appeal court did not decide what investigation material falls within the sphere of legal privilege, and the interplay between regulatory obligations imposed by statute and those privilege claims. It did caution against a "blanket" claim of privilege.

These cases suggest a Canadian court may not adopt the ruling of the High Court, and hold that requiring a corporation to have compelling evidence of its own wrongdoing before litigation privilege applies could hamper the corporation's defence. However, since Suncor is under appeal, the direction the law will take on litigation privilege in the corporate criminal context remains uncertain.

The best practice for corporations

While the High Court's decision is at odds with Canadian decisions, it offers practical lessons for corporations facing a criminal or quasi-criminal investigation. The SFO's power to compel evidence under the UK's Criminal Justice Act 1987 is similar to the powers of securities commissions and occupational health and safety officers in Canada. Thus, a similar issue could arise.

Counsel should be involved as soon as possible and, where appropriate, the investigation should proceed at counsel's direction for the purpose of providing the corporation with legal advice and in contemplation of litigation. Involving counsel emphasizes that a corporation is seriously concerned about the prospect of a criminal proceeding. Further, involving counsel allows the corporation's internal investigation to be conducted with a view to invoking legal advice/solicitor-client privilege, which is separate and distinct from litigation privilege. Legal advice/solicitor-client privilege exists any time a client seeks legal advice from a lawyer whether or not litigation is involved.

In all investigations, a corporation should immediately take steps to properly identify and protect documents relating to the criminal allegations under investigation that are subject to privilege. At the outset, documents should be marked as privileged and prepared in relation to an anticipated criminal proceeding. ENRC failed partly because its internal investigation appeared to be aimed only at assessing whether wrongdoing had occurred. The documents at issue were also inconsistently labelled as privileged.

Criminal allegations should be treated as presenting a real risk of prosecution, even before an investigation by the authorities has commenced. To that end, a corporation should ensure there is a record that it perceives the potential that the allegations will lead to a prosecution, not merely a criminal investigation. A weakness in ENRC's claim for litigation privilege was a failure to demonstrate that the corporation was concerned about anything more than a raid by the SFO on its offices before and during the SFO's investigation.

Finally, a corporation may view an internal investigation into allegations of criminal wrongdoing that do not require a statutory internal investigation as unnecessary if the corporation doubts the veracity of the allegations. However, failing to conduct a privileged investigation at the outset may hamper the corporation's ability to prepare for prosecution should the allegations in fact have some merit.

Following these practices will help a corporation maximize litigation privilege when facing a criminal investigation as Canadian law on litigation privilege continues to develop.

The authors wish to thank summer student Ian Wylie for his help in preparing this legal update.


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