High Court: SFO investigation not 'adversarial litigation' giving rise to litigation privilege

Out-Law News | 15 May 2017 | 3:05 pm | 4 min. read

A mining business currently under criminal investigation by the Serious Fraud Office (SFO) cannot claim litigation privilege, allowing it to withhold certain categories of internal documentation from the SFO, the High Court has ruled.

Mrs Justice Andrews said that the prospect of a criminal investigation by the SFO was not the same as the prospect of 'adversarial litigation', meaning that, in the circumstances of this case, the strict tests for litigation privilege were not met. The company could, however, withhold a limited sub-set of documents from the SFO to which legal advice privilege applied.

Corporate crime expert Anne-Marie Ottaway of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment was significant, as it suggested that litigation privilege would not cover documents and interview records created during internal investigations in anticipation of future criminal proceedings.

“It has long been known that for a claim of litigation privilege to succeed adversarial proceedings must be in progress or in reasonable contemplation and the communication made with the sole or dominant purpose of conducting that anticipated litigation," Ottaway said. "However, this case brings into stark focus the difficulty of establishing this in relation to investigations which may lead to a criminal prosecution."

"While claims of privilege over notes of interviews made during an internal investigation have long been a topic of debate and litigation, Mrs Justice Andrews in this judgment goes much further, setting a very high bar for when litigation privilege can be claimed at all in a case involving criminal investigation. Some law enforcement authorities, such as the SFO, already regularly challenge assertions of litigation privilege. It is likely that this decision will encourage others to follow suit," she said.

The company, Eurasian Natural Resources Corporation (ENRC), has said that it will appeal the decision, despite being denied leave to do so by the High Court judge. Its next step will be to make an application for permission to appeal to the Court of Appeal.

Litigation privilege applies to communications and documents that have been prepared for the dominant purpose of defending legal proceedings, or where legal proceedings are reasonably anticipated. Legal advice privilege applies to confidential communications between lawyers and their clients which relate to the provision of legal advice. A document which is protected by either form of privilege need not be shared with regulators, enforcement agencies or counterparties to litigation.

The SFO opened a criminal investigation into ENRC in April 2013, focusing on allegations of fraud, bribery and corruption around the acquisition of substantial mineral assets in Kazakhstan and an African country. In connection with this investigation, it brought a civil claim challenging ENRC's claim to privilege in respect of various categories of documents, generated during the company's internal investigations between 2011 and 2013. The SFO also claimed that the company had been planning to self-report as of the end of November 2011.

ENRC denies that it has committed any criminal offence warranting investigation and potential prosecution by the SFO, and a decision by the SFO on whether or not to prosecute will not follow until later in the investigation process. In her judgment, Mrs Justice Andrews said that it was therefore "misconceived" to suggest that an SFO investigation or the prospect of a 'dawn raid' as part of that investigation should be treated as 'adversarial litigation' for the purposes of litigation privilege.

"The policy that justifies litigation privilege does not extend to enabling a party to protect itself from having to disclose documents to an investigator," she said. "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."

"The investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous process … It is always possible that a prosecution might ensue, depending on what the investigation uncovers; but unless the person who anticipates the investigation is aware of circumstances that, once discovered, make a prosecution likely, it cannot be established that just because there is a real risk of an investigation, there is also a real risk of prosecution," she said.

"The question whether the person anticipating a criminal investigation also contemplates that prosecution is likely (though not more likely than not) to follow the investigation, rather than just possible, must therefore be considered on a case by case basis," the judge said.

Mrs Justice Andrews acknowledged the implication that this made litigation privilege more difficult to establish where criminal prosecution, rather than civil proceedings, were the potential outcome. However, this was due to the severity of criminal prosecution, she said.

"One critical difference between civil proceedings and a criminal prosecution is that there is no inhibition on the commencement of civil proceedings where there is no foundation for them, other than that prospect of sanctions being imposed after the event," she said.

"A person may well have reasonable grounds to believe they are going to be subjected to a civil suit at the hands of a disgruntled neighbour, or a commercial competitor, even where there is no properly arguable cause of action, or where the evidence that would support the claim has not yet been gathered. Criminal proceedings, on the other hand, cannot be started unless and until the prosecutor is satisfied that there is a sufficient evidential basis for prosecution and the public interest test is also met," she said.

This meant that criminal proceedings could not reasonably be 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", she said.

"This case is not just interesting from the perspective of a criminal investigation," said commercial litigation expert Michael Fletcher of Pinsent Masons. "It is a clear reminder to clients of the risks of conducting internal investigations of any sort, for example fact-finding investigations to determine whether to terminate a contract, without taking legal advice on whether litigation is in reasonable contemplation."

"It is also a reminder of the importance of clearly defining the internal 'client' that is to receive legal advice: the solicitors interviewed various individuals within ENRC who were not authorised to seek or receive legal advice on behalf of ENRC, and so notes of those interviews were not privileged," he said.