Alex Swan discusses the uncertainty that still remains following the Court of Appeal’s judgment in the SFO v ENRC case.
In one of the most keenly awaited judgments of 2018, the Court of Appeal has overturned a heavily criticised High Court decision, which had restricted severely the extent to which litigation privilege could apply to documents created during the course of an internal investigation. Uncertainty remains, however, as to the point in time from which litigation privilege will apply, and corporates will need, therefore, to be careful that they do not ‘fall through the gap’.
As most readers will know, ENRC is a company operating in the mining and natural resources sector. In April 2011, ENRC initiated an internal investigation following the receipt of an email from a whistle-blower alleging corruption and financial wrongdoing within one of its subsidiaries. Soon after, in August 2011, ENRC began to engage with the SFO in connection with a potential self-report and civil settlement of any criminal liability.
In early 2013, the discussions between the SFO and ENRC broke down and, in April 2013, the SFO commenced a formal investigation against ENRC and issued various notices against its former solicitors requiring them to produce relevant documents. ENRC asserted legal professional privilege in relation to certain documents created during the internal investigation including notes prepared by the company’s solicitors of interviews with employees and third parties. Ultimately, in February 2016, the SFO issued a claim for a declaration as to whether ENRC was entitled to refuse to disclose these documents.
The High Court ruling
In May 2017, Mrs Justice Andrews in the High Court held that the documents created during the internal investigation conducted by ENRC were not subject to litigation privilege and therefore fell to be disclosed. The Judge applied the established test that litigation privilege would apply only to documents created for the dominant purpose of (deployment in, or obtaining legal advice relating to the conduct of) adversarial litigation which was in reasonable contemplation. The Judge held, however, that ENRC’s “dominant purpose” had been only ‘fact-finding’ and thereafter avoiding a criminal investigation by showing the documents to the potential adversary.
As regards whether litigation – in this case, a criminal prosecution – was reasonably contemplated, the Judge drew a distinction between an SFO investigation, which ENRC did contemplate, and criminal proceedings, which it did not, because “criminal proceedings cannot be reasonably contemplated unless the prospective defendant knows enough about what the investigation is likely to unearth, or has unearthed, to appreciate that it is realistic to expect a prosecutor to be satisfied that it has enough material to stand a good chance of securing a conviction.”
The consequence of this ruling was of course that a great tranche of material that the company had previously been advised by its solicitors would be covered by legal professional privilege and thereby protected from disclosure could now be demanded by the SFO and utilised to prosecute the company and its directors. To say that the ruling created shock-waves amongst the British, and international, legal community would not be an overstatement.
Common sense returns
On 5 September 2018, the Court of Appeal allowed the appeal by ENRC and held that ENRC was right to say that criminal proceedings were in reasonable contemplation when it initiated its investigation in April 2011, and certainly by the time it received, in August 2011, the invitation by the SFO to commence a discussion and consider self-reporting. The Court made it plain, however, that each case will turn on its facts. It would not, for example, be the case that every SFO manifestation of concern would properly be regarded as adversarial litigation. Nor would it inevitably be the case that once an SFO criminal investigation is reasonably in contemplation, so too is a criminal prosecution.
Rather, in the instant case it appears that the Court was of the view that a criminal prosecution was reasonably contemplated because: “…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.” And “… when the SFO specifically makes clear to the company the prospect of its criminal prosecution…and legal advisers are engaged to deal with that situation, as in the present case, there is a clear ground for contending that criminal prosecution is in reasonable contemplation.”
As regards, the ‘dominant purpose’ test, the Court again rejected the High Court’s reasoning and held that the fact that solicitors prepare a document with the ultimate intention of showing that document to the opposing party does not automatically deprive the preparatory legal work of litigation privilege. Furthermore, “in both the civil and criminal context, 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 for the purpose of resisting or defending such contemplated proceedings.”
In summary, the Court took the 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. Were they to do so, the temptation might well be not to investigate at all, for fear of being forced to reveal what had been uncovered whatever might be agreed (or not agreed) with a prosecuting authority.”
Uncertainty still remains
Whilst the Court of Appeal’s rationale that companies should be free to investigate allegations of wrongdoing without fear of having to hand over the product of that investigation to the authorities is, of course, commendable, the Court appears to have held back from holding that litigation privilege will always apply in such circumstances.
It is, for example, unclear why the Court determined that a criminal prosecution was in reasonable contemplation when ENRC initiated its investigation in April 2011 in circumstances where the bulk of the Court’s reasoning centred on the fact specific nature of the company’s subsequent, from August 2011, interaction with the SFO. The Court gave particular weight to the references during those discussions to a possible criminal prosecution (notwithstanding that a formal criminal investigation had not yet commenced). Perhaps, therefore, it was the public nature of the allegations in April 2011 (media reports suggested that the SFO had been asked to investigate ENRC by this time) and the sense within the company that it was ‘firmly on the [SFO’s] radar’ by this time that influenced the Court’s decision.
Whatever the reason, it does appear to be the case that a company which is made aware of an allegation of wrongdoing will not, without more, necessarily be able to assert litigation privilege over the product of an internal investigation into that potential wrongdoing. Instead, the company may well have to identify further facts that give rise to a reasonable basis to contemplate that a criminal investigation, and thereafter a criminal prosecution, will follow.
An aside on legal advice privilege
During the course of the hearing, ENRC (and the Law Society intervening) also pressed the Court of Appeal to consider the law on legal advice privilege and whether it applied to, in particular, the solicitors’ notes of interviews with employees. The Court considered, however, that it was bound by its previous decision in Three Rivers (No. 5), which decided that only communications between solicitors and employees who were tasked with seeking and receiving legal advice on behalf of the company could attract such privilege.
Nonetheless, the Court felt able to express, obiter, its clear support of ENRC’s arguments and only just fell short of expressly inviting an appeal to the Supreme Court so that the matter could be determined. In so doing, the Court noted that in the case of large companies it is unlikely that the facts upon which legal advice is sought will be within the knowledge of the main board or those appointed to seek and receive legal advice.
It is frankly absurd, on any analysis, to expect that the subject of an SFO investigation should not be able to independently investigate the allegations against it without fear of the product of that investigation being disclosed to the SFO. The decision of the Court of Appeal is therefore to be welcomed. It is clear, however, that the mere existence of an SFO investigation (actual or potential) will not automatically lend the cloak of privilege to any document created during an internal investigation. The question of whether litigation privilege applies will still need to be determined on a case by case basis with reference to other additional facts. Some uncertainty still, therefore, remains and companies and their legal representatives will need to be cautious to ensure that they have recorded the evidence to support any subsequent claim of litigation privilege.
If you’d like to discuss any of the issues raised in this article with one of our solicitors then please get in touch in the strictest confidence.