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Published 11 October 2018
In a highly anticipated decision, the Court of Appeal in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation  has allowed ENRC's appeal, providing welcome guidance on the scope of legal professional privilege, particularly in the context of regulatory and criminal investigations.
We comment on the impact of this decision on SFO and FCA investigations.
This decision reverses the High Court's controversial ruling that documents created during internal investigations carried out by ENRC together with its professional advisers were not protected by privilege, and so were liable to be disclosed to the SFO.
ENRC had carried out voluntary internal investigations between 2011 and 2013 following the emergence of corruption allegations by a whistleblower. As part of these investigations, lawyers and other professionals conducted fact-gathering and review exercises. In parallel to this, ENRC and the SFO engaged in a period of dialogue relating to ENRC's operations.
In April 2013, the SFO commenced a criminal investigation, and as part of it sought disclosure of a number of documents generated during ENRC's earlier internal investigations which included documents created by (i) lawyers (including notes of interviews with ENRC employees), and (ii) forensic accountants in the course of their "books and records" review.
Claim for Privilege and High Court Decision
In the High Court, ENRC asserted their right to refuse disclosure of the documents on the basis of litigation privilege and legal advice privilege.
Litigation privilege attaches to communications between parties or their solicitors and third parties where:
It includes all material forming part of the continuum of communications, even those documents, such as lawyers' notes of meetings, which do not expressly seek or convey advice.
Legal advice privilege is far narrower in scope, attaching only to communications made in confidence between lawyers and their clients for the purpose of giving or obtaining legal advice, whether or not litigation is contemplated or on foot.
Mrs Justice Andrews in the High Court held that ENRC's claims for litigation privilege, and most of its claims for legal advice privilege failed.
See our article on the High Court decision here.
Court of Appeal decision
The Court of Appeal took the view that the case should be regarded as one primarily about litigation privilege. Although it commented on them, it chose not to decide the legal advice privilege issues, suggesting these issues, very important as they were, should be decided by the Supreme Court.
The Court was asked to address two issues in order to determine whether the documents were covered by litigation privilege: first, whether criminal proceedings were "reasonably in contemplation" (ie. it was a “real prospect” or “a real likelihood as opposed to a mere possibility”) at the time the documents had been created; and second, whether the “dominant purpose” for creating the documents had been to resist contemplated criminal proceedings.
"Reasonably in contemplation"
On the first question, the Court held that criminal proceedings had been reasonably in contemplation by ENRC, on the basis that "the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution". The court's additional observations are of note:
The Court of Appeal held that the documents had been created for the dominant purpose of resisting contemplated criminal proceedings and made the following observations:
These findings are relevant to regulatory investigations, setting the bar for litigation privilege far lower than that suggested by Mrs Justice Andrews for firms or companies under investigation.
Legal advice privilege
Despite its criticisms of the current law on legal advice privilege, the Court nevertheless considered itself bound by the current position. Pending an appeal to the Supreme Court, it is worth restating the law as it stands:
The Court deferred any ruling on the above position, together with the question of whether a lawyer's working papers (e.g. interview notes) were covered by legal advice privilege, to the Supreme Court.
Significantly, underlying the Court's judgment was a strongly stated public policy argument that companies should not be deterred from investigating whistleblower and other investigations for fear of losing privilege over the work product of their investigation.
Impact on FCA/SFO investigations
Directors face personal exposure and potential liabilities when their company is investigated by a regulator.
The right to seek legal advice under the protection of legal privilege is a recognised human right and should be respected by regulators. At times a regulator may press for fuller disclosure, as the SFO did in its case against ENRC, however, maintaining a legitimate legal right should not be the subject of regulatory criticism. A prudent Board will need to think about privilege and the protection it affords when launching an internal investigation which might prove relevant to regulatory enquiries.
The Court of Appeal decision has reversed the findings of the Judge at first instance. Its clarifications will give comfort to those under investigation seeking the protection of privilege.
We suggest the following should be borne in mind following the Court of Appeal's decision in the context of investigations by regulators such as the SFO or the Financial Conduct Authority ("FCA"):
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