The Court of Appeal has handed down its much-anticipated judgment in the case of The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006. The judgment can be found here. The judgment represents a key judicial interpretation of the boundaries of litigation privilege, particularly in the context of a criminal investigation into corporate wrongdoing.
Most importantly, the Court of Appeal agreed with ENRC that the majority of the documents in question (including notes of interviews with company employees prepared by ENRC’s lawyers) were protected by litigation privilege and therefore protected from disclosure. In addition, the Court of Appeal overturned arguably the most controversial aspect of the first instance decision and found that litigation privilege can attach, even if a formal criminal investigation has not been commenced by the UK authorities.
The decision is important as it will make it easier for companies to rely on the protection afforded by litigation privilege during internal investigations conducted when a criminal investigation is in prospect. All eyes will be on the SFO to see if it makes an appeal to the Supreme Court.
Background
In December 2010, ENRC began an internal investigation following whistle-blower allegations of fraud, bribery and corruption in Kazakhstan and an African country. ENRC began communicating regularly with the SFO from August 2011, which led to the SFO launching its own criminal investigation in April 2013. As part of its investigation, the SFO exercised its powers under section 2(3) of the Criminal Justice Act 1987, compelling ENRC to produce documents relevant to the investigation. The SFO’s powers of compulsion do not extend to documents that are subject to litigation privilege, which ENRC claimed applied to certain categories of documents (the “Disputed Documents“).
First instance decision
On 9 May 2017, the High Court held that litigation privilege did not apply to the Disputed Documents, as ENRC could not demonstrate that adversarial litigation was contemplated at the time that the documents were produced. The Court cited USA v Phillip Morris in its decision stating that, for litigation privilege to apply, it fell on ENRC to establish that, as of the date it approached the SFO, it was “aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility“. The Court concluded that ENRC’s claim to litigation privilege failed as, although the SFO’s investigation was in reasonable contemplation, as a point of principle a criminal investigation by the SFO should not be treated as adversarial litigation. Andrews J stated that the investigation and inception of prosecution could not “be characterised as part and parcel of one continuous amorphous process“. ENRC’s claim for legal advice privilege also failed except in respect of one category of documents.
Our alert on the original judgment can be found here.
The impact of the judgment for companies conducting internal investigations in the shadow of a criminal investigation was chilling. Most notably, it required companies seeking to rely on litigation privilege to prove that, at the time of the creation of the documents, the company genuinely considered that a criminal prosecution (rather than an SFO investigation) was reasonably contemplated and that the documents were created for the purpose of that prosecution.
The decision of the Court of Appeal
Litigation Privilege
The Court of Appeal agreed with ENRC that the majority of the Disputed Documents (including notes of interviews with employees produced by its lawyers) were protected from disclosure on the basis that the evidence proved that a criminal prosecution was reasonably in prospect when the documents were created. In addition, the Court of Appeal held that the judge at first instance 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. The fact that a formal investigation has not commenced will be one part of the factual matrix, but will not necessarily be determinative.”
The Court of Appeal also disagreed with the first instance judge on the question of the purpose for which the majority of the Disputed Documents had been created. The Court concluded that, not only was a criminal prosecution reasonably in ENRC’s contemplation, but the documents were brought into existence for the dominant purpose of resisting or avoiding those (or some other) proceedings.
Accordingly, the Court of Appeal ruled that the vast majority of the Disputed Documents were, contrary to the first instance decision, covered by litigation privilege and therefore do not fall to be disclosed to the SFO.
This aspect of the judgment is good news for all corporates and practitioners caught up in internal investigations. It is important to note that each case will remain very much driven by its own facts. Nevertheless, it should now be easier for companies to prove that litigation was reasonably in prospect at any given time – even in the absence of a formal criminal investigation by the authorities – and, therefore, that litigation privilege is triggered. Indeed, the Court of Appeal specifically recognized that it was “obviously in the public interest that companies should be prepared to investigate allegations … prior to going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege.”
Legal Advice Privilege
The Court of Appeal’s decision as to whether the Disputed Documents were also protected by legal advice privilege is far less conclusive. Although the issue was, to a large extent, moot given the findings in respect of litigation privilege, the Court of Appeal stated that they were bound by the law as set down in the Three Rivers (No. 5) case. In that case, the Court held 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. However (and interestingly) the Court of Appeal gave a very clear steer that, although they were bound by Three Rivers (No 5), they did not agree with it noting “if, therefore, 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.”
As such, the debate regarding the scope of legal advice privilege is left to rumble on, until it can be conclusively determined by the Supreme Court. In the meantime, Three Rivers (No. 5) remains good law on this point, such that the definition of the “client” remains very restricted for the purposes of legal advice privilege. As a result, care must be exercised by all companies to ensure that the concept of the “client” is carefully considered and understood at the beginning of and throughout any matter, particularly in those circumstances when litigation privilege is unlikely to apply because, for example, a prosecution (or other adversarial action) is not reasonably in prospect. As the Court of Appeal itself commented, this issue is particularly important for multinational companies operating across borders, given that English law is “out of step” on this point with the approach taken in the USA and other jurisdictions.
Further judicial consideration of this issue would certainly be welcome. In particular, we share the Court of Appeal’s concern that, under the current law as it relates to legal advice privilege, a larger, multinational company will be in a less advantageous position than a smaller entity seeking legal advice. Such an outcome is undesirable and unfair.
A more detailed alert on the Court of Appeal judgment will follow in due course, together with some practical tips that corporates can take to maximise the prospects of privilege applying. We will also be hosting a presentation on 31 October 2018 on the decision and its impact for clients. Please let us know if you have any questions or comments, or if you would like to attend the presentation.
