UK: The Director Of The SFO V. Eurasian Natural Resources Corporation Limited

In The Director of the SFO v. Eurasian Natural Resources Corporation Limited (ENRC), the Court of Appeal overturned the High Court's decision and held that documents prepared by external lawyers and forensic accountants for an internal investigation are protected by litigation privilege.

Litigation privilege covers confidential communications between a client and a lawyer or third party made for the dominant purpose of conducting adversarial litigation which is pending, reasonably in contemplation or existing. It protects the client from having to disclose such communications to the opposing side in any proceedings.

Background

In December 2010, ENRC received a whistleblower's email that one of its overseas subsidiaries was involved in corruption and financial wrongdoing. It engaged external lawyers and forensic accountants to conduct an internal investigation into the claims.

The lawyers' notes (including 180 interviews with employees) and the accountants' review of ENRC's books and records are the documents over which ENRC claimed litigation privilege (the Documents).

The SFO got wind of the alleged corruption at ENRC and held meetings with the company to discuss compliance procedures and to consider self-reporting. In the following months, ENRC repeatedly promised commitment to a "full and frank" process but never made a substantial report of the results of the internal investigation.

In April 2013, the SFO announced a criminal investigation into ENRC; it served notice on the company under section 2 of the Criminal Justice Act 1987 requiring disclosure of all evidence relating to offences of bribery and corruption. ENRC claimed litigation privilege over the Documents and the current dispute ensued.

The Court of Appeal's judgment and its effect

The Court of Appeal held that the Documents were protected by litigation privilege because:

  1. Litigation was reasonably in prospect when the Documents were created.
  2. The Court of Appeal looked at all the circumstances and correspondence to determine whether litigation was reasonably in prospect during the investigation. A lawyer's contemporaneous statement that litigation "could be said to be reasonably in prospect" will not be conclusive evidence on this point.

    The court took into account several factors, including the fact that there was a whistleblower's email alleging corruption. Internal correspondence also showed that ENRC staff expected ENRC to be firmly on the SFO's radar; they predicted a dawn raid before summer was over and upgraded dawn raid procedures in response. The court held that the documents and evidence pointed clearly towards the contemplation of a prosecution.

    It would therefore be prudent for companies to keep a full record of documents and correspondence detailing when the company first anticipated prosecution or litigation, and any measures taken to deal with it. A fuller account of the reasons for believing litigation to be in prospect will be more likely to persuade a court to accept that documents created in that period for the dominant purpose of the conduct of that litigation are privileged.

  3. The dominant purpose of the Documents was to obtain advice or information for legal proceedings reasonably in contemplation.
  4. The SFO failed in its argument that the Documents were created only to avoid (rather than to resist or defend) contemplated proceedings and that they were not privileged as a result. Companies will welcome the fact that legal advice "given so as to head off, avoid or even settle reasonably contemplated proceedings" is as much protected by litigation privilege as advice given to defend a claim.

    The SFO also sought to argue that ENRC only engaged lawyers and accountants to perform a "fact-finding" and "investigatory" role, rather than provide it with actual advice regarding contemplated litigation (as stated in its retainer). The Court of Appeal rejected this as it "sat uncomfortably" with the background that a criminal prosecution was reasonably in ENRC's contemplation and that the purpose of its role was to assist ENRC in producing documents that would become useful in avoiding litigation later on. This generous interpretation of the role third parties play in an internal investigation makes it more attractive for companies to consult and involve third parties in an investigation involving corruption.

  5. Communications between employees and lawyers for the dominant purpose of conducting or avoiding litigation will fall within litigation privilege.

  6. Companies will welcome the fact that communications between their employees and legal advisers for the purpose of an internal investigation in anticipation of proceedings will also be privileged. The court had special regard for large corporations because it would be more likely that the employees (rather than the company's board) would have information about the case. Companies should encourage employees to participate in internal investigations by providing lawyers and accountants with evidence and interviews; this will enable the company to investigate alleged unlawful practices more thoroughly.

What about self-reporting?

If a company participates in a self-reporting process, this may remove its entitlement to litigation privilege, depending on the extent to which it has promised to disclose documents. In the current case, even though ENRC had appeared to take part in the self-reporting process and agreed to be "full and frank", the court emphasised that it had never actually agreed to disclose the materials created in the course of its investigation. Therefore, litigation privilege was not lost over the Documents. 

Companies should therefore be careful not to make any express commitment to disclose particular documents to the opposition because litigation privilege is likely to be lost as a result. However, it appears that a more general commitment to co-operate will not be seen as a waiver of litigation privilege. If the SFO then serves a section 2 notice requiring the disclosure of documents relating to alleged offences, litigation privilege will apply, provided that the company has not promised specifically to disclose any particular documents.

Why this is good for companies

Companies will be able to obtain fully informed legal advice for the purpose of avoiding any potential litigation and that advice and the documents created in order to obtain it are privileged. The court recognised that "it is obviously in the public interest that companies should be prepared to investigate allegations from whistle-blowers or investigative journalists, prior to going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege for the work product and consequences of their investigation".

It is welcome that the sanctity of litigation privilege was preserved in this case. Interestingly, the Court of Appeal took into account that the self-reporting guidelines which the SFO asked ENRC to consider clearly envisaged that they would need to receive professional advice from third parties during this process of investigation. It would be strange for the guidelines to expect companies to approach professionals for advice without reassurance that the advice would not later be revealed in court.

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