ENRC-The High Water Mark in the Law of Privilege or Just the Turn of the Tide?
Published 9 January 2019
The SFO has confirmed that it will not be appealing the Court of Appeal decision in SFO v ENRC which was handed down on 5 September 2018. This is welcome news as the decision has clarified the law of litigation privilege by overturning the High Court's restrictive first instance decision.
The High Court had found that various documents produced by ENRC's solicitors and forensic accountants during the course of an internal investigation into bribery and corruption allegations were not covered by litigation privilege including:
- Solicitors' notes of interviews with individuals;
- materials generated by forensic accountants as part of their review; and
- documents referred to in a letter from ENRC's barrister to the SFO.
The Court of Appeal found on the facts of this case that criminal litigation was in contemplation and the category of documents were produced for the dominant purpose of resisting or avoiding such litigation. Whilst the test for litigation privilege remains the same, the Court of Appeal firmly rejected the High Court's very narrow interpretation of it.
The case has not affected the position in relation to legal advice privilege. Although the Court said that it would have departed from Three Rivers (No. 5) had it been able to do so, the position remains that in order to attract legal advice privilege, an employee must be tasked with seeking and receiving legal advice by an organisation.
This is an important decision which will bolster arguments to protect certain categories of documents against disclosure.
What is legal privilege?
There are two types of legal privilege:
Legal Advice Privilege
This protects communications between a legal advisor and their client or any person representing their client made in connection with the giving of legal advice. It is sometimes assumed that all communications between employees of an organisation and its in-house legal team and external legal advisers are privileged, but this is not always so.
Communications between a solicitor and their client relating to a transaction in which they have been instructed for the purpose of obtaining legal advice will be privileged. However communications between employees and in-house lawyers who may also provide commercial or operational advice may not be. Whether documents attract legal advice privilege also depends on whether the particular employee is tasked with obtaining legal advice; this aspect is considered further below.
This protects communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation in the following circumstances:
- Litigation must be in progress or in contemplation;
- The communications must have been for the sole or dominant purpose of conducting that litigation (this decision clarifies that this can include for the purposes of avoiding that litigation); and
- The litigation must be adversarial, not investigative or inquisitorial.
Background to the Court of Appeal Decision
The case arose out of a claim by ENRC that various documents produced by its lawyers and forensic accountants during an internal investigation into allegations of bribery and corruption were protected by litigation privilege. The internal investigation began following discussions between ENRC and the SFO about participation in a self-reporting process. Later on, ENRC decided that it did not wish to engage in that process and refused to comply with the SFO's attempts to compel the production of its internal investigation documents. These included notes taken by its lawyers from witness interviews, documents created by its forensic accountants when reviewing records and factual evidence presented by ENRC's lawyers to its governance committee and board.
In 2017 in the High Court, the SFO successfully challenged ENRC's claim that the documents were subject to litigation privilege and therefore not disclosable. The Court ruled that a criminal investigation by the SFO was not adversarial litigation because it was only a preliminary step before deciding whether to prosecute. The Court also found that the documents were not created for the dominant purpose of contemplated litigation, and rejected ENRC's submission that litigation privilege extended to third party documents created to avoid contemplated litigation.
Whilst the context of the case was an investigation by the SFO and a self-reporting regime, the principles in the case were also applicable to internal investigations into breaches of other regulatory duties (such as health and safety) .
Following the first instance ruling in ENRC, came the Court of Appeal decision in R(HSE) v Paul Jukes in 2018 which considered the status of a statement signed by a defendant after a fatal workplace accident. It was found not to be privileged because criminal proceedings were not yet in contemplation. The fact that the defendant had not been interviewed by the HSE and police until 16 months after the date of the statement was relevant to the decision that no adversarial litigation was in progress. In any case, any legal privilege would have attached to the company not the individual who had asserted it.
The Court of Appeal Decision in ENRC
The Court of Appeal rejected the High Court's finding that litigation was not in reasonable contemplation. In fact, the whole sub-text to 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 Court also rejected the notion of a general principle that litigation privilege cannot attach until either a decision has been taken to prosecute or the defendant is aware of facts that make a prosecution likely. Whilst an individual suspected of a crime will usually know whether he or she has committed it, a corporation will be in a different position. The fact that further investigations are required to understand the organisation's position does not 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".
The Court also clarified that the fact that solicitors may prepare a document with the ultimate intention of showing that document to the opposing party does not automatically deprive the preparatory documents of litigation privilege. Legal advice given to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given in order to defend such proceedings.
The Court indicated that in a case where there is a clear threat of criminal investigation, the dominant purpose of an investigation into whistle-blower allegations may be to prevent or deal with litigation. There was clear public interest in organisations being able to investigate allegations by whistle blowers or investigative journalists without losing the benefit of legal professional privilege even in advance of self-reporting. Whilst this is in the context of the SFO self-reporting regime, similar arguments are likely to apply in relation to investigations which may result in actions by other regulators. For example, it is clearly important that organisations are not discouraged from investigating health and safety accidents for fear of creating disclosable documents.
Legal Advice Privilege
The Court was not asked to decide upon the issue of legal advice privilege given the findings in relation to litigation privilege, so its comments on that topic do not have precedential value, but it is interesting to see the approach taken.
The Court found much force in arguments that the earlier Court of Appeal case of Three Rivers (No.5) had been wrongly decided; it would have departed from this decision. That case determined that communications between an employee of a corporation and its lawyers could only attract legal advice privilege if that person was tasked with seeking and receiving such advice on its behalf. The Court recognised the difficulties in applying this in a large organisation and that the present state of the law left large corporations in a less advantageous position than smaller entities.
Unfortunately it is only open to the Supreme Court to depart from Three Rivers so we must await further appeals on the point. Even so, these comments may indicate that the judiciary is concerned about the erosion of legal privilege. However, for the time being organisations should still be clear about those individuals who are tasked with requesting and receiving legal advice and this should be recorded in writing.
Implications for Obtaining Legal Advice and Internal Investigations
Whilst most regulators have wide powers to require the production of documents relevant to their investigations, they cannot normally obtain documents which are protected by legal privilege. Defendants can likewise rely on legal privilege to protect such documents from disclosure in civil litigation.
Many documents may be created in the aftermath of an incident or in the course of an investigation as an organisation tries to understand what has happened, why and the extent of its potential exposure to legal, financial and reputational risk. It is not always appreciated that these internal documents may be disclosable to third parties unless they are protected by legal privilege. That protection only arises where legal advisors have been engaged and the documents fall within one of the two categories of legal privilege: legal advice privilege or litigation privilege.
The decision is helpful as it may help lawyers and their clients to protect materials produced as part of an internal investigation where adversarial litigation is reasonably contemplated and the dominant purpose of that litigation is to avoid, resist or conduct that litigation.
It is important to obtain legal advice at an early stage to understand the position in respect of legal privilege and to set up an investigation in a way that will protect legal privilege as far as possible.
How we can help
We know that managing serious incidents can be very challenging for an organisation and dealing with regulators can always be difficult. We are experienced in advising organisations in the aftermath of incidents and can provide advice on legal privilege and on requests for disclosure in criminal regulatory investigations.