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Appeal court: privilege applied to internal investigation documents

Out-Law News | 05 Sep 2018 | 4:13 pm | 5 min. read

Internal documents generated by the Eurasian Natural Resources Corporation (ENRC) in connection with a Serious Fraud Office (SFO) investigation into allegations of fraud, bribery and corruption were protected by litigation privilege, the Court of Appeal has ruled.

The judgment overturns that of the High Court, which ruled last year that the company could not claim litigation privilege over documents generated during its internal investigations. The High Court judge had incorrectly decided that SFO criminal proceedings were not "reasonably in contemplation" at the time when the documents were created, the appeal court said.

Although the High Court judge "may have been justified in thinking that the process was at an early stage", "that did not mean that the SFO was not taking a serious and concerted interest in ENRC's activities", the Court of Appeal said, in its unanimous judgment.

"[W]e are not sure that every SFO manifestation of concern would properly be regarded as adversarial litigation, but 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," the Court of Appeal said.

"[T]he documents and evidence pointed clearly towards the contemplation of a prosecution if the self-reporting process did not succeed in averting it … [W]hilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty, in our judgment, does not in itself prevent proceedings being in reasonable contemplation," it said.

The Court of Appeal also concluded that "not only was a criminal prosecution reasonably in ENRC's contemplation, but the judge ought also to have determined that [the documents in issue] were brought into existence for the dominant purpose of resisting or avoiding those (or some other) proceedings".

Civil fraud and asset recovery expert Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com, said that the decision would restore clarity for businesses, "following the uncertainty and concern generated by the original decision".

"It is pleasing to see that the court has essentially reaffirmed the position on litigation privilege as it was understood to be before the High Court judgment in this case," he said.

"The decision does away with a number of illogical distinctions, such as the High Court judge's conclusion that documents prepared with the purpose of warding off litigation in the first place, rather than defending it, are not covered by litigation privilege - the Court of Appeal's recognition that both are sufficient litigation purposes is consistent with practical reality and common sense for those facing a dispute. The decision will mean that businesses can be more confident again about thoroughly investigating issues which have arisen, such as allegations of fraud," he said.

"However, there is no room for complacency, and businesses and their legal advisers must remain vigilant. They should still expect assertions of privilege to be closely scrutinised by third parties, regulators and law enforcement. It remains key to any claim for litigation privilege that litigation can be shown to have been both reasonably contemplated at the time of any investigation and to have been the sole or dominant purpose of any documents in question. Those conducting an investigation need to be clear as to what they are doing and why. The objectives of the investigation should be set out in writing, in documents such as instruction letters to external lawyers and those lawyers' engagement letters. If there are multiple objectives but litigation is the dominant or overarching one, this should be made clear, giving appropriate detail as to the potential issues and parties involved in the contemplated litigation," he said.

The Court of Appeal referred in its judgment to the RBS v Bilta case of late 2017, in which the High Court upheld a claim of privilege in respect of documents generated during an internal investigation. Pinsent Masons acted on behalf of RBS in the case.

"In the RBS v Bilta case, the clarity with which Pinsent Masons had set out the objectives of the investigation which it led for the bank was a key part of the judge's acceptance that privilege applied to the products of that investigation. Lawyers experienced in conducting internal investigations should therefore remain the first port of call for any business considering embarking upon such an investigation," Sheeley said.

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.

The test for whether litigation privilege can be claimed was confirmed in the House of Lords' decision in the Three Rivers case, 'Three Rivers (No. 6)', of 2004. It applies to confidential communications and documents that have been prepared for the dominant purpose of conducting adversarial litigation which is "in progress or in contemplation". A document which is privileged need not generally be shared with regulators, enforcement agencies or counterparties to litigation.

Although "less important" given its conclusions on litigation privilege, the Court of Appeal then went on to consider whether notes of interviews conducted by ENRC's lawyers with employees and ex-employees of the company and its subsidiaries should be protected by legal advice privilege. This form of privilege generally attaches to confidential communications between lawyers and their clients which relate to the provision of legal advice. The court said that it was prevented from finding in favour of this point due to the decision of the Court of Appeal in another case involving Three Rivers, 'Three Rivers (No. 5)'.

Following an intervention by the Law Society, the Court of Appeal acknowledged that English law was "out of step with the international common law on this issue". However, the discrepancy was one which could only be resolved by a higher court, in this case the UK Supreme Court, it said.

"If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation's employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice," the Court of Appeal said.

"In our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach," it said.

"A finding that legal advice privilege attached to the interview notes would have really changed the landscape in this area, making it even easier for lawyers to take privileged notes of interviews with employees and ex-employees if they were using that process to inform the advice they were giving to the company," said Alan Sheeley.

Corporate crime expert Neil McInnes of Pinsent Masons said that although the decision would "offer welcome respite" to companies concerned about whether privilege would attach to materials generated as a result of internal investigations, "much still will turn on the particular facts and the state of mind of the corporate at the commencement, and during its own fact-finding investigations".

"Notably, we see compliance and public policy considerations within the judgment. The court remarked that, were corporates not to benefit from legal privilege in these circumstances, the temptation might be for investigations not to be commenced at all - which clearly works against all good governance and best practice compliance considerations," he said.