Legal professional privilege in a regulatory context: What you need to know following the decision in SFO v ENRC

13 June 2017

Louise Lanzkron, Jonathan Speed

In a decision1 which will have ramifications for privilege generally the High Court has re-examined the remit of litigation privilege ("LP") in the context of criminal proceedings and approved the narrow approach taken in respect of legal advice privilege ("LAP") in other recent cases. The court took a strict approach to determine exactly when LP applies prior to the formal instigation of criminal proceedings and it also applied an equally stern interpretation to the concept of 'dominant purpose', whether in criminal or civil proceedings. The court continued to endorse the strict approach taken in other recent cases regarding who the 'client' is when considering LAP and held that not all lawyers' working papers will be covered by LAP.

Facts

The Claimant (the "SFO") is a non-ministerial Department of State whose functions include the investigation and prosecution of crimes involving serious or complex fraud. The Defendant, ENRC, is part of a multinational group of companies operating in the mining and natural resources sector. ENRC mainly operated in Kazakhstan until around 2010, and then following a series of acquisitions, also began operating in Africa from 2010 onwards.

In late April 2013, the SFO initiated a criminal investigation into ENRC following allegations of fraud, bribery and corruption in both Africa and Kazakhstan. The SFO's formal investigation had been preceded by a period of time between 2011 to 2013 whereby ENRC had instructed solicitors and forensic accountants to carry out its own internal investigation (and this was prior to the commencement of any formal investigation by the SFO). ENRC carried out this internal investigation against a background in which the SFO had encouraged companies to self-report cases of suspected overseas corruption with a view to negotiating a civil settlement2. ENRC claimed legal professional privilege ("LPP") in various documents generated during those investigations. In light of this, the SFO sought a declaration that these documents were not subject to LPP.

The documents in dispute fell into four categories and included:

  • Category 1 - notes taken by ENRC's solicitors of the evidence given to them by individuals when interviewed about the events being investigated (including employees, former employees, officers of ENRC, suppliers and third parties). ENRC claimed that these documents were subject to LP as the dominant purpose of the interviews was to enable the solicitors to obtain information and instructions, and to provide ENRC with advice in relation to anticipated adversarial (criminal) litigation. ENRC also claimed that the documents could also be subject LAP as the documents could be considered to be the solicitors work product and would show the trend of legal advice the lawyers were providing to ENRC;
  • Category 2 - materials produced by forensic accountants as part of their review to identify controls and systems weaknesses. ENRC again claimed LP in relation to the documents generated submitting that the dominant purpose of the reports was to identify issues to enable ENRC to obtain advice and assistance in connection with anticipated litigation;
  • Category 3 - documents indicating or containing the factual evidence presented by an external legal adviser to ENRC's Board. ENRC claimed both LAP and LP, in the alternative, in relation to these documents; and
  • Category 4 - documents referred to in a letter sent by a second firm of lawyers for ENRC to the SFO and emails between the ex-GC of ENRC, a lawyer, who was still employed by ENRC albeit in a different non-legal role, and a senior ENRC executive. ENRC claimed LP in relation to the former documents and the judge said the claim to LP would stand or fall with those documents in Category 2. ENRC claimed LAP in relation to the emails.

The key issue to be determined by the Court was whether ENRC was entitled to withhold the documents in dispute and the extent to which LP and LAP applied to the documents in the context of criminal proceedings. Mrs Justice Andrews did note that there were deficiencies in the evidence supplied by ENRC regarding the claims to LPP and that there was limited evidence to suggest that ENRC regarded the risk of it being prosecuted as anything more than a mere possibility.

The Legal Position

Section 2(3) of the Criminal Justice Act 1987 enables the SFO to compel a company or individual to produce documents. This does not extend to documents a company would be entitled to refuse to disclose or produce on the grounds of LPP in proceedings in the High Court3. In her judgment, Mrs Justice Andrews summarised the common law position relating to both LP and LAP.

In relation to LP she relied on the well-known test set out by Lord Carswell in Three Rivers (No.6) that LP applies to confidential communications between parties and their solicitors or between one of them and a third party, for the purpose of obtaining information, advice or information in connection with existing or contemplated litigation and the following conditions are satisfied:

Litigation is in progress or in reasonable contemplation. In accordance with the test in USA v Philip Morris litigation must be a 'real likelihood rather than a mere possibility'4;

• The communications are made with the dominant (or sole) purpose of conducting that anticipated litigation; and

• The litigation must be adversarial, not investigative or inquisitorial.

With regard to LAP, the judge relied on the test also formulated in both Three Rivers (No.5) and Three Rivers (No.6) and endorsed more recently in both Astex Therapeutics v Astrazeneca5 and The RBS Rights Issue Litigation6. LAP attaches to all confidential communications between a lawyer and their client (or agent) for the purpose of giving or receiving legal advice (even where litigation is not in contemplation).

The claim for litigation privilege

 The judge held that the claim for litigation privilege fell at the first hurdle because ENRC was unable to establish that litigation between itself and the SFO was a 'real likelihood rather than a mere possibility' in accordance with the test in USA v Philip Morris.

But even if ENRC had been able to overcome that first hurdle the judge held that the 'documents for which litigation privilege is claimed were not created with the dominant purpose of being used in the context of such litigation'7 because they were not created with the dominant purpose of obtaining legal advice relating to the conduct of that litigation. The Court considered that the dominant purpose of ENRC in generating the documents was to assess compliance or obtain advice on remedial steps to ensure future compliance.

The judge rejected the submission by ENRC that a criminal investigation by the SFO should be treated as adversarial litigation for the purposes of this privilege8. The judge stated that although the SFO has a dual role as an investigator and prosecutor, an investigation conducted by it does not always lead automatically to a prosecution. Whilst it is possible that a prosecution may ensue, this is not always the case as the purpose of the investigation is to assess whether a prosecution is justified. The evidence submitted by ENRC 'fell a long way short' of establishing that ENRC or its advisers considered that prosecution was a real possibility.

It follows from this that none of the disputed documents were created for the dominant purpose of seeking or receiving legal advice relating to the conduct of anticipated criminal proceedings because those criminal proceedings were never more than speculative. Rather, the documents were created to find out what happened, whether there was any truth to the allegations and to prepare for an investigation by any regulatory body, including the SFO9. They were created to avoid a criminal investigation rather than deal with the obtaining of legal advice pertaining to the conduct of a defence to a criminal prosecution (i.e. conduct of litigation).

The judge did acknowledge that there may be some circumstances in which documents could be created for the purpose of assisting a company to persuade a regulator not to prosecute, and if that failed, they could be used to help it prepare its defence but the judge concluded that the evidence submitted by ENRC did not support this dual purpose and therefore it could not be said that the latter purpose was the dominant one.

The judge was also alive to the boundaries permitted by LP and that this did not extend to creating documents with the specific purpose or intention of showing them to a potential adversary in litigation. LP, by its very nature applies to confidential communications. If the document did have a dual purpose, to help with the defence of anticipated legal proceedings, then the concept of limited waiver could be considered; but ENRC had not attempted to do this at the relevant time with the SFO.

The judge concluded that the documents were all created at a time when the relationship with the SFO was collaborative rather than adversarial and therefore the claim in relation to LP in relation to each category of documents failed.

The claim for legal advice privilege

The judge also rejected the claim for LAP in relation to all categories of documents claimed for apart from one. In relation to those documents in Category 1, the judge concluded that none of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC10. Therefore, they could not be considered to be 'the client'. In addition, if ENRC intended to take legal advice based on the content of those interviews, the interviews formed part of the preparatory work of compiling information for the purpose of enabling ENRC to seek and receive legal advice, and so were not privileged in any event. Although these interviews were lawyers 'working papers', and it was accepted that they represented the work of the lawyers mind in so far as the lawyer was selecting which comments he wrote down, they did not 'betray the trend of legal advice' because they merely reflected what the lawyers were told by witnesses11. The evidence did not show any substantial analysis by the legal team of the interviews or any qualitative assessment of their importance or relevance to the inquiry and therefore they fell short of what would suffice to make out a claim for lawyers working papers privilege12.

The judge did allow the claim for LAP to succeed in relation to category 3 documents which were slides and meeting notes presented by ENRC's external legal counsel, to the ENRC Board on 2 occasions as they were prepared for the specific purpose of giving legal advice to ENRC.

What does this mean for you?

The decision creates a dividing line between LP in civil and criminal matters as it adopts a narrow approach to the concept of LP in a criminal context. The judge was very clear that, on the evidence, the company had not considered that litigation with the SFO was in reasonable contemplation at any time during the internal investigation and therefore the first hurdle of LP was not established. The distinction drawn by the Judge between criminal and civil proceedings was that there was no bar to unfounded proceedings being brought in civil litigation whereas criminal proceedings cannot be commenced where they are unfounded. The test for when civil litigation is reasonably in contemplation should remain unchanged by this decision.

Even if the Judge had found that litigation was in reasonable contemplation, she gave a very narrow construction of 'dominate purpose' holding that putting together information that may be given to an investigator because it is created to find out what happened, is not the same as preparing to defend adversarial proceedings and will therefore not be protected in the same way.

Further the Judge found that LP would not attach to documents that were created to obtain legal advice as to the best way to avoid litigation, although she did acknowledge that advice in relation to settlement when litigation was commenced would be part of the dominant purpose and protected by LP.

For many this is a surprising conclusion as it calls into question the merits of carrying out a detailed documented internal investigation prior to any self-reporting by a company to a regulator / prosecuting authority. The fact of self- reporting may open the Company up to the investigator seeking further documentation including notes of interviews as part of this process. Companies may need to consider whether to forgo the necessity of carrying out a fully documented internal investigation prior to that decision in order to try and retain LP, although the regulator / prosecuting authority may still be able to request any material which has been created.

What is clear is that companies need to think through the evidence they have with regard to establishing any claim of LP or LAP in these types of situations. A lack of evidence from ENRC showing that they contemplated or considered that the SFO could prosecute appeared to persuade the judge that litigation was not in 'reasonable contemplation'. In addition the dominant purpose of any documents created during an investigation should be considered.

In respect of LAP, the decision is less surprising, as the judge continued to follow the recent lines of authority in Astrazeneca and RBS, agreeing with a narrow definition of who constitutes the 'client' being those who are authorised to seek and obtain legal advice on behalf of the company. This will make it difficult to retain privilege over factual information obtained from other employees who are not part of the 'client'. Care will therefore need to be taken in considering how any factual investigation is structured.

Further the Court endorsed the view that lawyers working papers need to betray the trend of legal advice before LAP can attach to them. Moreover LPP cannot apply to documents which the party intends to share with the 'other side'.

At the time of publication we understand that an application for permission to appeal has been lodged.

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1. Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB)
2. The system of self-reporting and the Guidelines which accompanied it were withdrawn by the SFO in October 2012 and replaced with a new set of Guidelines which clarified the SFO's role as a prosecutor.
3. S.2(9) Criminal Justice Act 1987
4. 
[2003] EWHC 3028 (Comm) at [46]
5. 
[2016] EWHC 2759
6. 
[2016] EWHC 3161 (Ch)
7. 
Para 149
8. 
Para 150
9. 
Para 165
10. 
Para 177
11. 
Para 178
12. 
Para 180

Authors

Louise Lanzkron

DR Knowledge & Development Lawyer
UK

Call me on: +44 (0)20 7415 6000