UK: Privilege And Investigations: Court Of Appeal Restores Ambit Of Litigation Privilege

Last Updated: 23 September 2018
Article by Tony Woodcock and Alan Ward

The facts

In December 2010 ENRC received an email from an apparent whistle-blower alleging corruption and financial wrongdoing at ENRC's Kazakh subsidiary. ENRC instructed solicitors in London to investigate the allegations contained in the email.

Allegations of corruption involving ENRC reached the public domain. In April 2011, an MP wrote to the SFO asking it to investigate ENRC's business in Africa. In August 2011, The Times reported on the allegations relating to Kazakhstan. Emails from March and April 2011 showed that ENRC's General Counsel and Head of Compliance were concerned about the prospect of an imminent "dawn raid" by the SFO.

By the summer of 2011, ENRC's investigation, conducted by its London solicitors, had expanded to cover allegations of corruption in both Kazakhstan and Africa. Forensic accountants had been instructed to conduct a "books and records review". ENRC's solicitors also began conducting interviews with current and former employees.

On 10 August 2011, the SFO wrote to ENRC regarding "recent intelligence and media reports concerning allegations of corruption and wrongdoing [by ENRC]". The SFO's letter invited ENRC to a meeting to discuss the allegations and urged ENRC to consider its July 2009 Self-Reporting Guidelines. The letter concluded by saying that the SFO was not conducting a criminal investigation into ENRC at that stage.

Through the remainder of 2011, and the entirety of 2012, ENRC's investigation continued. ENRC's solicitors were in regular dialogue with the SFO about progress and met with the SFO to provide periodic updates. ENRC's solicitors also provided updates on the investigation to the Board of ENRC.

In March 2013, no formal report from ENRC having been provided, the SFO served a compulsory notice on ENRC's solicitor (who had conducted the internal investigation) purporting to require the disclosure of documents relevant to its determination of whether a criminal investigation should be opened into ENRC. In April 2013, the SFO opened a criminal investigation into ENRC.

ENRC asserted legal professional privilege over the documents arising out of its internal investigation. Ultimately, in February 2016 the SFO issued a Part 8 Claim against ENRC for a declaration that no privilege attached to four specific categories of documents:

  1. Notes taken by ENRC's solicitors of interviews with current and former employees of ENRC, created between August 2011 and March 2013 ("the interview notes");
  2. Material generated by the forensic accountants that were instructed to undertake the "books and records review", created between May 2011 and January 2013 ("the books and records work product");
  3. PowerPoint Slides used by ENRC's solicitors to provide briefings on the investigation and legal advice to the Board and Corporate Governance Committee of ENRC ("the PowerPoint slides"); and
  4. Nine reports generated by the forensic accountants and six emails / letters enclosing copies of those reports ("the forensic accountant's reports").

    Category 4 also included two emails dating from October 2010 sent to and from ENRC's Head of Mergers and Acquisitions, which ENRC asserted were drafted for the purpose of seeking legal advice on behalf of ENRC ("the October 2010 emails").

The judgment at first instance

In her judgment in May 2017, Mrs Justice Andrews granted the declaration sought by the SFO in respect of Categories 1, 2 and 4. Mrs Justice Andrews held that no claim to legal professional privilege (either advice or litigation privilege) could be maintained in respect of these categories of documents on the basis that:

1 No claim to litigation privilege could be made out:

1.1 At no stage before the documents were created was litigation – i.e. criminal legal proceedings – reasonably in contemplation;

1.1.1 In August 2011 (or before) ENRC may have reasonably contemplated a criminal investigation. However, for the purposes of litigation privilege, reasonable contemplation of a criminal investigation (which does not amount to adversarial litigation) is not the same as reasonable contemplation of criminal prosecution;

1.1.2 There is a "critical" difference between civil and criminal proceedings, in that there is "no inhibition of commencement of civil proceedings where there is no foundation for them." In contrast, criminal proceedings cannot be commenced unless a prosecutor is satisfied that there is a sufficient evidential basis for prosecution and that the public interest test is met;

1.2 In any event, even if litigation had been in reasonable contemplation, the documents were not created for the dominant purpose of use in litigation, and thus not subject to litigation privilege;

1.2.1 The solicitors who generated the Category 1 documents were instructed as "information gatherers rather than as legal advisers";

1.2.2 Taking legal advice in relation to the conduct of future contemplated criminal litigation was not "even a subsidiary purpose of the creation of those documents, let alone the dominant purpose";

1.2.3 The dominant purpose of the books and records review was "plainly to meet compliance requirements or to obtain accountancy advice on remedial steps";

1.2.4 In November 2011, ENRC's general counsel wrote to the SFO indicating that the product of the internal investigation would be shared with the SFO; documents created "with the specific purpose or intention of showing them to the potential adversary in litigation" are not subject to litigation privilege.

2 Mrs Justice Andrews also rejected ENRC's claim to advice privilege over the Category 1 documents and the October 2011 emails:

2.1 Following Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 5) [2003] QB 1556 ("Three Rivers (No. 5)") only communications between a lawyer and client can be subject to legal advice privilege. Those interviewed by ENRC's solicitors were not authorised to seek and receive legal advice on behalf of ENRC. Therefore communications with those individuals, as evidenced in the Category 1 Documents (the interview notes), were not privileged;

2.2 The Category 1 documents could not be lawyers' working papers as they merely recorded what the lawyers were told by those who were interviewed, and did not "betray the trend of the legal advice";

2.3 The October 2011 emails were not subject to advice privilege as the Head of Mergers and Acquisitions, although qualified as a lawyer, was acting as ENRC's "man of business". Legal advice should have been sought from ENRC's General Counsel.

3 The Category 3 documents – PowerPoint presentations by ENRC's solicitors to the Board – were held by Mrs Justice Andrews to be subject to legal advice privilege:

3.1 The evidence showed that the slides were prepared for the purpose of giving legal advice to the Board – as opposed to merely reporting factual findings – and were thus "plainly privileged";

3.2 Even though the slides made reference to factual information, and findings from the African investigation, that would not otherwise be privileged, they are part and parcel of the confidential solicitor-client communication and also fall within the ambit of the protection of solicitors' work product;

3.3 Additionally, any record of what the solicitors said at the Board meetings (whether made by a lawyer or not) would also be subject to advice privilege, even if reference was made to information which would not otherwise be privileged.

The Court of Appeal judgment

The Court of Appeal found that the Documents in Categories 1, 2 and 4 (save for the October 2011 emails) were covered by litigation privilege.

Both of Mrs Justice Andrew's findings on litigation privilege were rejected by the Court of Appeal:

Litigation "reasonably in contemplation"

Contrary to Mrs Justice Andrews, the Court of Appeal found that ENRC was "in reasonable contemplation [of litigation] when it commenced its investigation in April 2011, and certainly by the time it received the SFO's August 2011 letter."

The Court of Appeal found that "the entire subtext of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution". The Court also appeared to place weight on evidence that ENRC received advice from its solicitors in April 2011 to the effect that "both criminal and civil proceedings can be reasonably said to be in contemplation".

Notably, the Court of Appeal recognised that an international corporation will often be uncertain as to the nature and extent of any potential criminal liability, and require an investigation to take place before it can say with certainty that proceedings are likely. The Court of Appeal went on to observe that uncertainty does not prevent proceedings being "in reasonable contemplation".

Mrs Justice Andrews' distinction between litigation privilege in civil and criminal contexts was also rejected as "illusory". The Court of Appeal held that "it would be wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitor to investigate the circumstances of any alleged offence."

The "dominant purpose" of the internal investigation

The Court of Appeal held that documents created to avoid as well as resist proceedings were protected by litigation privilege, and that this was the dominant purpose behind the creation of the Category 1, 2 and 4 documents (save for the October 2011 emails).

Although ENRC initially instructed its solicitors to investigate the whistle-blower allegations, and subsequently the Africa allegations, the Court of Appeal concluded that the investigation "must be brought into the zone where the dominant purpose may be to prevent or deal with litigation". Following the earlier Court of Appeal judgment in Re Highgrade Traders [1984] BCLC 151 the need to "investigate the existence of corruption in this case was just a subset of the defence of contemplated legal proceedings."

Mrs Justice Andrews' finding that the forensic account's work product and reports in Categories 2 and 4 were created for "compliance or remediation" purposes, and therefore not for the dominant purpose of litigation, was rejected by the Court of Appeal, observing that "although a reputable company will wish to ensure high ethical standards in the conduct of its business for its own sake, it is undeniable that the 'stick' used to enforce appropriate standards is the criminal law and, in some measure, the civil law also". The Court of Appeal also noted that the compliance and remediation work "might itself have been intended to avoid or deal with litigation".

Finally, Mrs Justice Andrews' finding that ENRC brought the documents into existence for the specific purpose of being shown to the SFO was also rejected. The Court of Appeal held that the fact a document is created with the specific purpose of being shown to the other side in litigation (for example, a response to a claim) does not mean that the advice received in respect of the creation of that document is not privileged: "The discussions surrounding the drafting of such a letter would be as much covered by litigation privilege as any other work done in preparing to defend the claim."

Conclusions and Practical Lessons for Internal Investigations

The Court of Appeal's judgment will be well received by in-house counsel and their outside legal advisors alike, affording significantly more comfort than the earlier High Court ruling as to the potential availability of the protection of litigation privilege in the context of an internal investigation.

However, it must be borne in mind that the facts of the ENRC case are exceptional. At the time the whistle-blower allegations came to light ENRC was a FTSE 100 company. Allegations of corruption were widely aired in the press and were the subject of a letter from a Member of Parliament to the SFO. For a year and a half ENRC was in dialogue with the SFO about self-reporting. On these singular facts it is perhaps unsurprising that ENRC had reason to contemplate legal proceedings from a relatively early stage in their investigation.

Most cases, where an allegation of potentially criminality comes to light, bear little or no resemblance to the situation in ENRC. Despite the comfort the judgment in ENRC offers, therefore, the question of when criminal litigation is in "reasonable contemplation", so as to trigger the protection of litigation privilege in any internal investigation, will, in the vast majority of cases, continue to require considerable careful thought.

That the Court of Appeal considered itself unable to depart from Three Rivers (No. 5) is unsurprising. More noteworthy was the Court's indication that it would have made a contrary finding on the ambit of advice privilege if it had been able to do so. So long as Three Rivers (No. 5), as understood and applied by the Court of Appeal in ENRC, remains authoritative, companies must take great care in delineating the group of individuals who will act as the "client" for the purpose of giving instructions and receiving legal advice, at the outset of any investigation. Only communications between that group and legal advisors will attract the protection of advice privilege. Factual summaries of any investigation can be protected by advice privilege (as the PowerPoint slides were found to be in ENRC) so long as they form part of the continuum of legal advice which is being provided. Similarly early and careful thought must be given to the "dominant purpose" of any investigative work, and any analysis should be documented, with a view to having to defend any assertion as to litigation privilege at a later date.

The SFO has not indicated its intentions as regards any application for permission to appeal to the Supreme Court. The public interest may be well served by the question of the proper ambit of legal advice privilege, in a corporate context, being determined conclusively.

However, given that the Court of Appeal did not interfere with the limited scope of advice privilege in the corporate context, which is favourable to public investigators and prosecutors (interview notes, which the SFO is often most eager to obtain, cannot as it stands be protected by legal advice privilege), and given that it is possible to confine the judgment in ENRC to its own, singular facts on litigation privilege, the SFO may be slow to initiate an appeal, lest it end up with what it might consider to be an even less palatable result.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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