Introduction
On September 5, the English Court of Appeal1 overturned the controversial first instance ruling in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited that severely restricted the scope of legal privilege afforded to documents produced during internal investigations. The Court of Appeal’s decision has been welcomed by lawyers and corporates alike.
As reported in Sidley’s June 1, 2017 Update2, the High Court, at first instance, ruled that several categories of documents prepared for an internal investigation following a whistleblowing report would not attract legal privilege. Those categories included external counsel’s notes of interviews with relevant personnel and documents prepared by external forensic advisors for the purposes of the investigation. In making its findings, the High Court severely restricted the scope of legal privilege afforded to documents produced during internal investigations.
The overarching theme of the Court of Appeal’s ruling was its welcome view 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.”
The Court of Appeal helpfully disagreed with the first instance ruling’s overly strict interpretation of litigation privilege under English law. During the case, arguments were also raised that the Court of Appeal should overrule or distinguish the longstanding and highly restrictive definition of “client” adopted in the Three Rivers litigation3 for the purposes of legal advice privilege (the other strand of legal professional privilege under English law). The Court of Appeal declined to do so, considering that the matter should properly be left for the Supreme Court to consider at some later date. However, it made a number of obiter comments that were highly critical of the current state of the law, suggesting once again that the rule in Three Rivers is ripe for reconsideration in any case that reaches the Supreme Court.
At the time of writing, it is unknown whether the Serious Fraud Office (SFO) will seek to appeal the Court of Appeal’s ruling.
The Facts
As more fully explained in Sidley’s June 1, 2017 Update, following whistleblowing reports and corruption allegations in respect of certain of its subsidiary operations in Africa and Kazakhstan, Eurasian Natural Resources Corporation (ENRC) engaged external lawyers and forensic accountants to assist with an investigation into the allegations.
Alongside its internal investigation, from August 2011 ENRC also entered into discussions with the SFO under the SFO’s self-reporting guidelines then in force. The SFO had commented to ENRC that it was not carrying out a criminal investigation into ENRC at that stage.
Subsequently, in 2016, the SFO initiated criminal proceedings against ENRC and sought copies of documents (including interview notes) generated during ENRC’s internal investigation. ENRC claimed that these documents were protected under both limbs of legal professional privilege under English law (litigation privilege and legal advice privilege) and refused to disclose the documents. The High Court rejected this claim.
Litigation Privilege
Under English law, litigation privilege protects any confidential communication between lawyer and client, or between either of them and a third party, created for the dominant purpose of conducting litigation that is in reasonable contemplation.
Litigation in Reasonable Contemplation
The Court of Appeal overturned the High Court’s first instance ruling that ENRC had not reasonably contemplated a criminal prosecution when the documents at issue were generated.
The High Court had drawn a distinction between the contemplation of an SFO investigation and contemplation of the SFO's commencing formal criminal proceedings. It noted that whereas civil proceedings may be commenced even if groundless, for formal criminal proceedings to be commenced, the SFO would need to be satisfied that there was a reasonable evidential basis for doing so. On that basis, ENRC would essentially have had to find sufficient evidence to suggest that the SFO had good reason to bring formal criminal proceedings before those proceedings could be in reasonable contemplation.
The Court of Appeal found this distinction to be artificial, adding that, in any event, uncertainty as to whether formal proceedings would be commenced did not prevent them from being in reasonable contemplation. It determined on the facts that litigation was in reasonable contemplation throughout as “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.”
One note of caution is that the Court of Appeal made clear that not every manifestation of concern by a regulator would necessarily mean litigation was in reasonable contemplation. In this instance, the SFO had made clear to ENRC the prospect of its criminal prosecution over and above the general guidelines provided to all parties. The court must assess each case on its own facts and other instances may not be as clear.
The Dominant Purpose Test
At first instance, the High Court found that ENRC’s dominant purpose in launching its investigation was compliance and governance rather than defence of a possible criminal prosecution. The Court of Appeal disagreed, taking a much broader and more commercial view. It found that “where there is a clear threat of a criminal investigation … the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation.”
In keeping with this more commercial approach, the Court of Appeal observed that although a reputable company will wish to ensure high ethical standards in the conduct of its business for its own sake, the “stick” used to enforce appropriate standards is ultimately the threat of criminal or civil sanction. This conceivably extends the law beyond its previous scope as it may suggest that almost any company (and particularly a company in a regulated industry) proactively carrying out an investigation will be driven primarily by the fear of possible sanction and so would meet the dominant purpose threshold.
Documents to Be Shared With Another Party
The Court of Appeal also disagreed with the High Court’s ruling that a document cannot be covered by litigation privilege simply because it has been prepared with the intention of showing it to the opposing party. The correct analysis instead is that, provided it meets the usual tests for litigation privilege, such a document will be protected until it is provided to the other side.
Legal Advice Privilege
Legal advice privilege applies to confidential communications between client and lawyer for the purposes of enabling the client to seek, or the lawyer to give, legal advice and assistance in a relevant legal context. A subcategory of legal advice privilege protects lawyers’ working papers, to the extent that those documents betray or give a clue as to the trend of advice being given to the client by its lawyers.
The leading authority on legal advice privilege remains the controversial 2003 decision in Three Rivers, which restricted the meaning of “client” for the purposes of privilege to those employees tasked specifically with seeking legal advice. Communications between the lawyers and those outside that specific group would not attract privilege.
ENRC argued that the decision in Three Rivers was either wrong or had been misinterpreted. The Court of Appeal declined to rule on this point, determining that if Three Rivers were to be departed from, it was a matter for the UK Supreme Court. It did, however, make clear that, were it open for it to depart from Three Rivers, it would have done so and that English law appears out of step with other common law countries in this area.
The Court of Appeal’s judgment adds to the weight of opinion that Three Rivers leaves English law in an unsatisfactory position and is ripe for reconsideration. The SFO has confirmed that it will not be pursuing an appeal to the Supreme Court, suggesting that this controversial area of English law will remain unchanged for some time further.
Conclusion
The Court of Appeal’s judgment is a welcome development, providing significant reassurance to companies undertaking internal investigations in the face of potential regulatory action. The ruling does not detract, however, from the need to document effectively the decision to undertake an investigation and to make clear when regulatory action is in reasonable contemplation.
1 [2018]EWCA Civ 2006
2 https://www.sidley.com/-/media/update-pdfs/2017/05/final--20170531-litigation-update.pdf
3 Three Rivers District Council & ors. v Governor and Company of the Bank of England (No.5) [2004] EWCA Civ 218
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