No appeal of the Court of Appeal decision on privilege in SFO v ENRC [2018] - relief or disappointment?

09 October 2018

Last week the Serious Fraud Office (SFO) confirmed that it will not be appealing the Court of Appeal (CA) judgment of 5 September 2018 which overturned the first instance decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2018] in relation to findings of fact concerning claims of litigation privilege.

The first instance decision produced a degree of alarm in terms of the extent of the documents not attracting privilege - here we review the analysis of the CA.



Background

  • In December 2010 a whistle-blower made allegations of fraud, bribery and corruption in respect of Eurasian Natural Resources Corp Ltd's (ENRC) mining operations in Kazakhstan and Africa. ENRC instructed solicitors to carry out an internal investigation.
  • In August 2011 (following press coverage relating to the allegations), the Serious Fraud Office (the SFO) contacted ENRC, confirming it was not carrying out a criminal investigation into the allegations "at that stage" but nevertheless encouraging ENRC to engage and participate in a self-reporting process.
  • ENRC's lawyers conducted the investigation and engaged in discussions with the SFO on ENRC's behalf.
  • In 2013, the SFO commenced a formal investigation into the criminal allegations that had been made. In due course, the SFO sought disclosure of documents generated by ENRC's lawyers and accountants during ENRC's internal investigation - ENRC asserted legal professional privilege (LPP).
  • These proceedings were commenced by the SFO seeking a declaration that the Disputed Documents (see below) were not subject to LPP and should be disclosed.

The Disputed Documents comprised four different categories:

  1. Category One - solicitors' notes of the evidence given to them by individuals when asked about the events being investigated.
  2. Category Two - materials generated by the forensic accountants as part of "books and records" reviews, focusing on identifying controls and systems weaknesses and potential improvements.
  3. Category Three - documents indicating or containing the factual evidence presented by the partner leading the investigation to ENRC's Nomination and Corporate Governance Committee and/or the ENRC Board on 14 and 15 March 2013.
  4. Category Four - 17 documents sent to the SFO by Fulcrum Chambers (who succeeded ENRC's original legal advisers), which independent counsel had determined did not attract LPP.

First instance decision

Litigation privilege

In summary, ENRC's claim for litigation privilege failed in its entirety at first instance.

Key findings by Mrs Justice Andrews at first instance:

  • ENRC was unable to satisfy the test for litigation privilege: that at the relevant date, it was aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility.
  • None of the Disputed Documents were created for the dominant purpose of anticipated criminal proceedings; rather, the intention was to help ENRC get to the bottom of the whistle blowing allegations.
  • Documents created with the specific purpose or intention of showing them to the potential adversary in litigation are not subject to legal privilege (regardless of whether they are to be shown to persuade the adversary to settle or to not bring proceedings to start off with).

These findings reflected the view expressed by Mrs Justice Andrews in the Judgment: "….[t]he general trend has been towards strictly confining, rather than extending, the ambit of litigation privilege."

Legal advice privilege

The High Court found that only the Category Three documents were subject to legal advice privilege; ENRC otherwise failed on this issue. Key considerations/findings:

  • In considering legal advice privilege, the court focused on the need for such communications to be between the lawyer and those authorised to obtain legal advice on behalf of the entity in question, referring back to the RBS Rights Litigation (which we have covered separately: When will internal investigations be protected-by-legal-advice-privilege?). There was no evidence to show that any of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC.
  • In relation to Category One (solicitors' notes of the evidence given to them by individuals when asked about the events being investigated), Mrs Justice Andrews found that a claim for privilege over lawyers' working papers will only succeed if the documents betray the trend of the legal advice.

    "the protection afforded to lawyers' working papers is justified if, and only if, they would betray the tenor of the legal advice. A verbatim note of what the solicitor was told by a prospective witness is not, without more, a privileged document just because the solicitor has interviewed the witness with a view to using the information that the witness provides as a basis for advising his client. In other words, the client cannot obtain the protection of legal advice privilege over interview notes that would not be privileged if he interviewed the witness himself, or got a third party to do so, simply because he procured his lawyer to interview the witness instead."

    This aspect of the first instance decision in particular caused great concern over the limited nature of privilege in this context.

Court of Appeal decision

Litigation privilege

The CA overturned the first instance judgment in this regard, finding that all of the Disputed Documents were covered by litigation privilege - none therefore would have to be disclosed.

Key findings:

  • It is in the public interest that companies be able to conduct such investigations without the fear of all documents generated being disclosable.
  • The fact that lawyers prepare a document with the intention of disclosing it does not automatically deprive the preparatory legal work of litigation privilege.
  • In the CA's view it was clear that all of the Disputed Documents were created for the dominant purpose of resisting/avoiding proceedings.

Legal advice privilege

The CA did not deal directly with these issues. Based on the CA's finding on litigation privilege, the documents were privileged in any event; additionally, the CA did not consider it appropriate to depart from Three Rivers District Council and Others v Governor and Company of the Bank of England (No. 5) [2003] (Three Rivers (No 5)). Such a consideration would have to be made by the Supreme Court as and when such a case arose.

The CA did note however that if it had been open to them to depart from the finding in Three Rivers (No5), it would have been in favour of doing so.

The CA's consideration of the Disputed Documents

The CA limited this decision to findings of fact in terms of the circumstances of this case, and expressly declined to go beyond this into findings relating substantively to the decision in Three Rivers (No 5) and legal advice privilege.

No new law therefore but the CA did make robust decisions relating to ENRC's claims to litigation privilege and subsequent courts will be guided by the approach of the CA here.

Key findings of the CA:

Issue 1: Was the judge right to determine that, at no stage before all the Documents had been created, criminal legal proceedings against ENRC or its subsidiaries or their employees were reasonably in contemplation?

  1. The first instance judge was wrong to conclude that a criminal prosecution was not reasonably in prospect once the SFO contacted ENRC in August 2011. The CA considered in detail the contemporaneous documents and reached the opposite conclusion to that of the first instance court, ie that "… the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement".
    In fact, the CA considered that proceedings were actually in reasonable contemplation when ENRC began its investigation in April 2011.
  2. In April 2011, ENRC's external lawyer, Mr Gerrard, had stated that a criminal prosecution was in contemplation (and so privilege would apply) - the CA noted that "…. Mr Gerrard's view was not conclusive…… but that again does not mean that a criminal prosecution was not actually in contemplation."
  3. Whilst taking into account previous case law, it is not correct to say that once an SFO criminal investigation is reasonably in contemplation, so too is a criminal prosecution. It will depend on the facts of each case; here, the evidence "pointed clearly towards the contemplation of a prosecution if the self-reporting did not succeed in averting it".
  4. Uncertainty about whether or not proceedings are likely do not in itself prevent proceedings being in reasonable contemplation, and the first instance judge was wrong to regard the uncertainty as pointing against a real likelihood of prosecution.

The CA position was summed up: "For the reasons we have given, Andrews J was not right to suggest a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken."

Issue 2: Was the judge right to determine that none of the Documents was brought into existence for the dominant purpose of resisting contemplated criminal proceedings against ENRC or its subsidiaries or their employees?

  1. The CA's view: "The fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party does not, in our judgment, automatically deprive the preparatory legal work that they have undertaken of litigation privilege."
  2. Andrews J at first instance had found there to be overwhelming evidence that the Category One documents were created for the specific purpose of being shown to the SFO. The CA disagreed, stating that there was significant evidence to show that ENRC never actually committed to disclosure of these documents. ENRC never agreed to waive privilege.

Issue 3: In the circumstances, which if any of the Category 1, 2 or 4 documents are protected by litigation privilege?

  1. The CA's finding was that all of the interviews undertaken by ENRC's external lawyers were covered by litigation privilege. This equally applied to the books and records review.
  2. Aside from 2 specific emails (for which litigation privilege was not claimed), all of the Category 1, 2 and 4 documents were therefore covered by litigation privilege.

Legal professional privilege - going forward

The CA decision has not changed the principles of LPP, but it has been clear in deciding that those principles are not to be applied as narrowly as they had been at first instance.

From this perspective, it is a relief that the SFO has announced that it will not be appealing the CA decision. It does mean however that a potential opportunity for the Supreme Court to reassess the finding in Three Rivers (No5) on legal advice privilege has been missed.

The CA's obiter view on this issue was stated clearly:

"As will be apparent from what we have already said, we would have determined that Three Rivers (No. 5) decided that communications between an employee of a corporation and the corporation's lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client …….

If,… it had been open to us to depart from Three Rivers (No. 5) , we would have been in favour of doing so. For the reasons we have given, however, we do not think that it is open to us, so it is a matter that will have to be considered again by the Supreme Court in this or an appropriate future case.."

We will have to wait for a future case.

In the meantime, whilst each case will of course depend on its facts, we set out some considerations going forward.

  • Many companies will be unable to assess the likelihood of future litigation without undertaking interviews and perhaps instructing experts first.

    If litigation was reasonably anticipated at the relevant time and the documents were generated for the dominant purpose of that litigation (the internal investigation being the secondary purpose) they are more likely to be privileged.

    Bear in mind that being in a position to produce clear evidence to this effect will assist if privilege is challenged.
  • Lawyers' notes of meetings with witnesses which indicated the trend of legal advice are likely to be protected by legal advice privilege.
  • It remains that case that (particularly within larger organisations) many individuals who provide information to lawyers are unlikely to be regarded as the client and will not therefore be seeking or receiving legal advice on their behalf.

    Unless the lawyer is liaising with an individual who is authorised to obtain legal advice on behalf of the organisation, any communications generated will not be privileged.

If you have any queries on this or related topics, please contact Andrew Smith or Ashley Pigott.


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