10 September 2018

The availability of privilege

The availability of legal professional privilege is a critical issue for businesses. If a document is privileged, then it is generally protected against disclosure in legal proceedings and also to enforcement authorities in an investigation. As such, it has been seen as a key protection enabling businesses to seek confidential legal advice from both in-house and external counsel on the issues that they face.

Recently, the scope of privilege has been subject to increasing challenge, most notably in the High Court’s decision in SFO v ENRC (2017). In her decision, Andrews J took a restrictive approach, in particular on the availability of litigation privilege. The decision caused consternation amongst general counsel and the legal profession, concerned that the documentation generated in an internal investigation would be susceptible to disclosure.

The Court of Appeal has now overturned the High Court’s decision. While the question of whether documents are privileged remains a question of fact, the Court of Appeal has put businesses in a stronger position to argue that the documents that they generate, in particular when conducting internal investigations, are privileged and therefore protected from disclosure. It also perhaps paves the way for the Supreme Court to review the current test for legal advice privilege and, in particular, the question of who constitutes the “client” which has been a difficult issue for large businesses ever since the decision in Three Rivers (No 5).

Read the Court of Appeal’s decision in full.

We examine the case and its implications below.

Privilege: a reminder

There are two types of privilege:

Legal advice privilege

This protects communications between a business and its legal adviser for the primary purpose of giving or receiving legal advice. There are limits to legal advice privilege. It does not extend to a business's communications with third parties. Nor does it apply to its communications with its legal adviser that do not relate to legal advice (e.g. where the legal adviser is acting as a general "man of business"). It is also limited to communications to and from the “client” in the business, namely those in the business that are authorised to seek and obtain legal advice from the legal adviser.

Litigation privilege

This is wider than legal advice privilege. It protects communications passing between a business and its legal adviser, or even a third party, so long as legal proceedings are reasonably contemplated by the business, and the dominant purpose of the communication is the conduct of those legal proceedings.

The facts

In 2010, a whistleblower at ENRC made allegations of bribery and financial malpractice within the entity’s subsidiaries in Kazakhstan and Africa. ENRC conducted an internal investigation, with assistance from its legal advisers and forensic accountants. The investigation generated a significant volume of documentation, including:

  • notes of interviews conducted by legal advisers with ENRC’s current and former employees
  • documentation created by ENRC’s forensic accountants in reviewing ENRC's books and records.

In 2013, the SFO commenced a formal criminal investigation into ENRC. As part of its investigation, the SFO applied for disclosure of, amongst other things, the above documents, arguing that they were not privileged. ENRC resisted the application. The matter fell to be dealt with by the High Court.

The High Court’s decision

Andrews J found for the SFO. In particular:

  • Legal advice privilege – This did not apply. First, the interview notes were not communications between ENRC's legal advisers and their "client" i.e. persons in ENRC authorised to seek and obtain legal advice. Rather, they were notes of communications with employees who were essentially third party witnesses. Further, the notes did not constitute the legal adviser's "working papers", since they did not betray the tenor of the legal adviser’s advice to ENRC. Second, she noted that ENRC had not argued that the documentation created by the forensic accountants could be the subject of legal advice privilege.
  • Litigation privilege – This did not apply either. Andrews J considered that, until the prosecutor was satisfied that the evidential and public interest tests for prosecution were met, no prosecution could exist and so legal proceedings could not have been in contemplation. She did not think that allegations of criminal conduct, nor even a criminal investigation by the SFO, were sufficient. Furthermore, even if a prosecution had been reasonably contemplated, none of the documents had been created with the dominant purpose of being used in such litigation, but had been produced in order to be provided to the SFO as part of their investigation with the intention of avoiding such litigation.

This decision proved controversial, particularly in respect of litigation privilege. First, the effect was to make the trigger point for the reasonable contemplation of criminal proceedings very late in the process, namely at the point of imminent prosecution. Second, this position was inconsistent with that found in civil proceedings, where it is accepted that litigation can be contemplated at the early stages of a dispute.

The Court of Appeal’s decision

ENRC appealed the decision. The Court of Appeal overturned the High Court’s decision. It dealt with the litigation privilege issue first.

Litigation privilege

The Court of Appeal held that, on the facts, when the interview notes and forensic accountant's documents were created, criminal proceedings were in reasonable contemplation and the dominant purpose of those documents was for use in the conduct of those proceedings. It referred to the following facts in particular:

  • ENRC had received a whistleblower email alleging corruption and financial wrongdoing within its business and appointed legal advisers to investigate the allegations.
  • ENRC's general counsel had made clear that he thought that ENRC was firmly on the SFO's radar and that he expected an investigation in due course, which was why he had upgraded ENRC's dawn raid procedures.
  • ENRC's head of compliance predicted an SFO dawn raid "before summer's over".
  • ENRC's legal advisers advised them that the internal investigation related to conduct that was potentially criminal in nature, adversarial proceedings might arise out of the internal investigation and that, in their view, both criminal and civil proceedings could be reasonably said to be in contemplation.
  • When the SFO wrote to ENRC, it said that the SFO was not carrying out a criminal investigation at that stage, but asked that ENRC carefully consider the SFO's Self-Reporting Guidelines then in force. The Guidelines stated, amongst other things, that "no prosecutor can ever give an unconditional guarantee that there will not be a prosecution" and participation in the self-reporting process would increase "the prospect (in appropriate cases) of a civil rather than a criminal outcome".
  • ENRC's lawyers advised it that, if it engaged in the voluntary disclosure regime, it would lose privilege in relation to the documents that it provided to the SFO. There was therefore an assumption at that time that legal professional privilege would otherwise attach to those documents.
  • At the first meeting between ENRC and the SFO, the SFO said that it could give no assurance that it would not prosecute.
  • The SFO subsequently met ENRC and expressed concern at the absence of a report, saying that "[i]f the investigation had stalled or been obstructed this would be regarded very negatively. For a civil settlement to be entertained, it was essential that the investigation findings were disclosed in the near future".
  • ENRC's legal advisers wrote to the SFO mentioning legal professional privilege and asking for confirmation that "if an equitable settlement [were not] reached between the SFO and ENRC, … that it [was] accepted that the report [would] not be used by the SFO as evidence of any wrongdoing or in any criminal proceedings against either ENRC, any subsidiary of ENRC or any employee or director of ENRC or its subsidiaries". The reply gave no such assurances.

Consequently, the documents were protected by litigation privilege and were not vulnerable to disclosure to the SFO.

While the Court of Appeal did not set out any universal principles to assist with answering these questions in any particular case, it did make a number of helpful observations which businesses can look to. These are drawn together here:

The importance of privilege

  • It is 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.
  • Were they to do so, the temptation might well not be to investigate at all for fear of being forced to reveal what had been uncovered irrespective of what might be agreed (or not agreed) with a prosecuting authority.
  • It would be wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitor to investigate the circumstances of any alleged offence.
  • To determine whether a Deferred Prosecution Agreement is in the interests of justice, the court must examine the company’s conduct and the extent to which it cooperated with the SFO. Such an examination will consider whether the company was willing to waive any privilege attaching to documents produced during internal investigations, so that it could share those documents with the SFO. That does not affect the question of whether the documents are privileged in the first place.

Reasonable contemplation

  • Crucially, there is no distinction between civil and criminal proceedings for the purposes of assessing reasonable contemplation.
  • Not every SFO manifestation of concern would properly be regarded as adversarial litigation. However, when the SFO specifically makes the prospect of a criminal prosecution clear to the company and legal advisers are engaged to deal with that situation, there is a clear ground for contending that a criminal prosecution is in reasonable contemplation.
  • While a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty does not in itself prevent proceedings being in reasonable contemplation.
  • The fact that a formal investigation has not commenced will be one part of the factual matrix, but will not necessarily be determinative.

Dominant purpose

  • 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.
  • 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.

Legal advice privilege

The Court of Appeal declined to make any formal ruling on the question of whether the documents were protected by legal advice privilege. It said that this should be left to the Supreme Court. However, it criticised the law on legal advice privilege as it currently stands under the leading case of Three Rivers (No 5). In particular, it commented that the restrictive approach to identifying the "client" is inappropriate when applied to large global institutions in today’s business environment. It is hoped that this opportunity will be taken to clarify a situation which has long troubled businesses when disseminating legal advice to those who have a legitimate interest in it.

Observations and recommendations

The SFO may of course decide to appeal the decision to the Supreme Court. However, the position as things stand is as follows:

  • While each case will depend on its own facts, businesses are now in a stronger position to assert privilege over documentation they generate in investigations.
  • This will enable businesses to commence and conduct such investigations with greater confidence that the decision over whether to disclose investigation documents will be theirs to make, rather than one which is out of their hands.
  • It will also hopefully provide both suspects and witnesses with the reassurance that the interview notes that record their accounts are protected from compulsory disclosure to the authorities.
  • A business should continue to consider the possibility that, depending upon what evidence of wrongdoing it uncovers in its investigation, it may wish to make a self-report to the relevant authorities, for example in order to seek a Deferred Prosecution Agreement (DPA). Careful consideration will need to be given at an early stage as to whether it is appropriate to waive the right to privilege in certain investigation documentation, if it is deemed in the business’s best interests to do so.

In order to maximise the possibility of being able to assert privilege over documents generated during any internal investigation, we recommend that businesses consider the following:

  • Any internal investigation should be conducted from the outset by a specifically established investigation team including internal and also, where appropriate, external legal counsel.
  • Secure means of communication should be established for use by the investigation team.
  • The business together with its legal counsel should actively consider at the outset whether, on the basis of the allegations and the information available, civil and/or legal proceedings are reasonably contemplated. If they are, this should be recorded in the terms of engagement with the external legal adviser and also in the business’s internal reports, together with an explanation of what those proceedings are and the reasons for their contemplation.
  • If no proceedings are in contemplation at the outset of the matter, but that subsequently changes, this should be recorded in writing by the investigation team. Again, an explanation for that change in view should be provided.
  • All privileged internal investigation documents should be marked "Confidential and Legally Privileged".
  • Distribution of the investigation documents should be carefully controlled. All such documents should be retained within the investigation team. Careful consideration should be given to, and control exercised over, any decision to distribute such documents outside the team.

How can we help?

We regularly advise clients on the conduct of internal investigations. If you would like any help in this regard, please contact David Hall from our Fraud and White Collar Crime team.

Key contact

David Hall

David Hall Partner

  • Dispute Resolution
  • Banking Disputes
  • Business Crime and Regulatory Investigations

Subscribe to news and insight

Fraud and White Collar Crime

Our fraud and white collar crime team combines criminal, regulatory and civil fraud expertise to provide corporates and directors with a complete service in this challenging area.
View expertise