27 September 2018

The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006

The English Court of Appeal’s decision in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited raises important issues as to the proper scope of legal professional privilege. Most notably, the Court of Appeal held that documents generated during a company’s internal investigations into allegations of fraudulent practices were covered by legal professional privilege where there was a clear threat of a criminal investigation and the documents were brought into existence for the dominant purpose of resisting contemplated criminal proceedings.

In reaching this decision, the Court of Appeal allowed an appeal against the decision of the High Court below which had declined to apply legal professional privilege to documents prepared by solicitors and forensic accountants, drawing a distinction between investigations and actions in contemplation of litigation.

Facts

Upon the receipt of a whistle-blowing email alleging corruption and financial wrongdoing in a subsidiary company, the audit committee of the defendant company, Eurasian Natural Resources Corporation Limited (“ENRC”), instructed external counsel (“law firm”) to investigate the allegations.  Following media reports that a member of Parliament had asked the UK Serious Fraud Office (“SFO”) to investigate ENRC and see whether it had adequate procedures to prevent bribery in connection with an acquisition, and concerned that ENRC would be raided by the SFO, ENRC also appointed a firm of forensic accountants to undertake a books and records review.  The same firm of forensic accountants also supported the law firm’s investigations arising from the whistle-blowing email.

The SFO issued a letter to ENRC’s general counsel and urged ENRC to consider carefully the SFO’s Self-Reporting Guidelines (“Guidelines”) whilst undertaking its internal investigations, but stated that the SFO was not carrying out a criminal investigation into ENRC at that stage. This led to a lengthy period of dialogue between the SFO and ENRC (including its external counsel). Eventually, the SFO announced that it would be conducting criminal investigations into ENRC. ENRC asserted that certain documents generated during investigations into its activities by its solicitors and forensic accountants (“Documents”) were the subject of legal professional privilege. The Documents included notes of some 184 interviews (including with its current and former employees) made by the law firm engaged by ENRC, as well as materials generated by the firm of forensic accountants engaged by ENRC.

The High Court decision

The High Court judge below had declined to apply legal professional privilege to the Documents. First, the High Court held that the Documents were not protected by litigation privilege, having found that at the time of their creation, criminal proceedings were not even a “distinct possibility”, let alone a real prospect. In the Judge’s view, documents that are generated at a time when there is no more than a general apprehension of future litigation cannot be protected by litigation privilege just because an investigation is, or is believed to be, imminent. Even if a prosecution had been reasonably in contemplation, the High Court was of the view the Documents were not created with the dominant purpose of being used in the conduct of such litigation. The High Court held that ENRC’s focus was on investigating the facts to see what had happened and dealing with compliance and governance issues with that in mind. Second, High Court also dismissed ENRC’s alternative claim for legal advice privilege in relation to the law firm’s notes, on the grounds there was no evidence that any of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC, and the communications between such persons and the law firm were not communications in the course of conveying instructions to the law firm on behalf of ENRC.

ENRC appealed.

Basic parameters of legal professional privilege

The Court of Appeal referred to various authorities and briefly reiterated the basic parameters of legal professional privilege.

Litigation privilege

Communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:

  • litigation must be in progress or in contemplation; 
  • the communications must have been made for the sole or dominant purpose of conducting that litigation; 
  • the litigation must be adversarial, not investigative or inquisitorial.

Legal advice privilege

All communications between a solicitor and his client relating to a transaction in which the solicitor has been instructed for the purpose of obtaining legal advice will be privileged, notwithstanding that they do not contain advice on matters of law or construction, provided that they are directly related to the performance by the solicitor of his professional duty as legal adviser of his client.

Issues

The Court of Appeal approached this case as one primarily about litigation privilege. As such, this article focuses on the following litigation privilege issues:

  • Whether the High Court was right to determine that, at no stage before all the Documents had been created, criminal legal proceedings against ENRC or its subsidiaries or their employees were reasonably in contemplation. 
  • Whether the High Court was right to determine that none of the Documents was brought into existence for the dominant purpose of resisting contemplated criminal proceedings against ENRC.

Whether criminal legal proceedings against ENRC were reasonably in contemplation

The Court of Appeal held that the High Court 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. Whilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, the court held that that uncertainty does not in itself prevent proceedings being in reasonable contemplation.

On the facts of the case, the Court of Appeal was of the view that 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. The documents and evidence pointed clearly towards the contemplation of a prosecution if the self-reporting process did not succeed in averting it. In this regard, the Court of Appeal took into consideration, inter alia, email evidence that ENRC’s general counsel was concerned about an SFO raid, SFO’s communications with ENRC (including, and over and above the Guidelines) which made clear the prospect of criminal prosecution, and the fact that legal advisers were engaged to deal with that situation (as was contemplated in the Guidelines). ENRC was therefore right to say proceedings were in reasonable contemplation when it initiated its investigation, and certainly by the time it received the SFO’s letter (even though the letter expressly stated that the SFO was not carrying out a criminal investigation into ENRC at that stage).

Whether the Documents were brought into existence for dominant purpose of resisting contemplated criminal proceedings

The Court of Appeal 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 that they have undertaken of litigation privilege. In both the civil and the 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.

Where there is a clear threat of a criminal investigation, the reason for the investigation of whistleblower allegations would fall within the zone where the dominant purpose may be to prevent or deal with litigation. In the present case and on its facts, even if litigation was not the dominant purpose of the investigation at its very inception, it was clear from the evidence that it swiftly became the dominant purpose. The Court of Appeal also disagreed with the High Court’s finding that the law firm’s notes were created for the specific purpose of being shown to the SFO, having found that ENRC had never actually committed to producing the law firm’s notes and work product to the SFO.

The Court of Appeal was of the view that it is obviously in the public interest that companies should be prepared to investigate allegations from whistleblowers 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.

Applying the basic principles outlined above, the Court of Appeal held that all the interviews undertaken by ENRC’s outside lawyers and the materials generated by the forensic accountants’ books and records review were covered by litigation privilege.

Accordingly, the Court of Appeal allowed ENRC’s appeal.

 

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