21 November 2018
By David Lehmann and Freya Riddel
 
Serious Fraud Office (SFO) v Eurasian Natural Resources Corp. Ltd  [2018] 
Litigation privilege allows organisations to conduct internal investigations into possible malpractice without the risk of generating sensitive material that would later have to be shared during a litigation process. To the concern of businesses and lawyers alike, the first United Kingdom High Court decision in SFO v ENRC (May 2017) significantly restricted the circumstances in which this privilege could be applied. Earlier this month, the Court of Appeal unanimously overturned this controversial judgement, returning to a broader interpretation of the criteria.
 

Background

 
In 2011 ENRC, a mining and minerals company, engaged lawyers and forensic accountants to undertake an internal investigation in response to a whistle-blower email alleging fraud, bribery and corruption in its entities.
 
In 2013, the Serious Fraud Office (SFO) began a criminal investigation into these matters and sought access to documents generated during ENRC’s internal investigation. These documents included: 

  • notes taken during fact-finding interviews with employees
  • presentations on findings of the investigation made to the ENRC board
  • materials relating to the forensic accountants’ review of ‘books and records’.

ENRC resisted the request to share these documents and the SFO took the matter to the High Court to declare that litigation privilege could not be applied in these circumstances.
 
In the High Court, Andrews J denied ENRC’s claim for litigation privilege on the basis that:

  1. On interpretation of the facts, criminal prosecution was not in reasonable contemplation at the time the documents were created.
  2. The documents had not been created with the dominant purpose of being used in litigation.
  3. Litigation privilege cannot be claimed in relation to documents created in order to receive legal advice as to how to avoid contemplated litigation.

 
The Court of Appeal overruled this conclusion on both the law and facts of the case. It decided that communications between employees demonstrated that they considered proceedings likely, and communications made by the SFO to the company indicated litigation was possible. It was also held that documents prepared for the dominant purpose of avoiding litigation proceedings, attracted the same privilege as those created to defend or settle proceedings.
 
The issue of legal advice privilege was raised separately. This privilege applies to confidential communications between lawyers and clients for the purpose of giving or receiving legal advice.
 
On this matter, the Court of Appeal conceded to the High Court position – that the protection could only apply to information received from those employees of ENRC authorised to receive advice from and/or instruct lawyers on the entity’s behalf (i.e. not all employees, and not third parties – which includes ex-employees). In this case, the documents in question were notes taken during interviews between the lawyers and current or former employees of ENRC and third parties with whom ENRC and its entities had dealings.
 
Whilst this narrow definition of ‘client(s)’ reflects English common law, the judge observed that it was in discordance with the common law in other international jurisdictions (i.e. Hong Kong and Singapore) and expressed that “legal professional privilege is a classic example of an area where one might expect to see commonality between the laws of common law countries, particularly when so many multinational companies operate across borders and have subsidiaries in numerous common law countries ”.

Significance

It is clearly in the public interest for organisations to investigate allegations of wrongdoing and this decision (which will extend to other regulatory fields such as the Financial Conduct Authority, Markets Authority, and HMRC) will restore confidence in any organisation undertaking such internal investigations.
 
That said, vigilance should still trump complacency. This case was decided primarily on the facts and it is likely that the facts will determine the outcome of future privilege disputes.
 
When conducting an internal investigation, in our experience it is imperative that a clear reporting and documentation protocol is upheld, taking account of the key drivers for each work product to ensure that should a dispute arise, these facts are clear. Efforts should also be made to maintain separation between workstreams which may have overlapping issues (as is often the case, where for example commercial matters are identified in the course of an investigation).
 
Organisations should be advised to record, and retain any documentation that evidences contemplation of litigation and to restrict the number of individuals with which material is shared; it remains true that once confidentiality is compromised, privilege can no longer apply.
 
On the issue of legal advice privilege raised in this matter, some questions remain outstanding, pertaining particularly to the level of privilege afforded to the likely range of individuals an independent investigator will seek to interview and the information ascertained in those interviews.
 
The SFO may yet appeal this decision to the Supreme Court.