Privilege and criminal regulatory investigations

Published 6 octubre 2017

SFO v ENRC [2017] EWHC 1017

The judgment of Mrs Justice Andrews handed down on 8 May 2017 in SFO v Eurasion Natural Resources Corporation Ltd [2017] EWHC 1017 has proven to be controversial with legal commentators and is under appeal. It strictly follows the restrictions placed by the House of Lords on claims to privilege by entities facing regulatory or criminal investigation in Three Rivers No 5¹. We comment briefly on its application to SRA investigations below.

Background

ENRC operates in the mining and natural resources industry. Following the emergence of allegations of corruption by a whistle-blower, between 2011 and 2013 ENRC and the SFO engaged in a period of dialogue relating to ENRC's operations in Asia and Africa. During this period, ENRC carried out internal investigations, employing solicitors and other professionals to conduct fact-gathering and review exercises. At the time, ENRC was considering "self-reporting" if corruption was uncovered. 

The period of dialogue ended in April 2013 with the commencement of a criminal investigation into ENRC relating to allegations of fraud, bribery and corruption. As a part of its criminal investigation, the SFO sought disclosure of four categories of document generated during ENRC's internal investigations:

• Notes taken by the solicitors instructed by ENRC of interviews with various individuals (including employees and former employees of ENRC and its subsidiaries, suppliers and other third parties)
• Materials generated by forensic accountants as part of the "books and records" reviews carried out between 2011-2013 to identify controls and systems weaknesses and potential improvements
• Documents indicating or containing factual evidence presented by ENRC's solicitors to its Board and sub-committees in 2013
• Documents referred to in a letter sent to the FRC by ENRC's solicitors.

Claim for privilege

ENRC asserted privilege over all four categories of document.

Litigation privilege attaches to communications between parties or their solicitors and third parties where:

• Litigation is in progress or reasonably contemplated,
• The communication is made for the sole or dominant purpose of actual or anticipated litigation, and
• The litigation is adversarial rather than investigative.

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.

Authorities in recent years have demonstrated that the 'dominant purpose' test will be applied strictly².

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. 

Mrs Justice Andrews rejected all but one of the ENRC's claims for privilege, holding that the claims for litigation privilege failed for a variety of reasons which included (i) litigation was not in reasonable contemplation at the time, (ii) the initial dialogue with the SFO was not "adversarial", and (iii) the documents were not created for the sole or dominant purpose of anticipated litigation. Surprisingly, it was suggested that documents prepared for the dominant purpose of avoiding contemplated litigation are not privileged. 

Furthermore, legal advice privilege did not apply, in particular because, for each category of document, those communicating with the lawyers were not authorised to, and therefore did not, seek legal advice; they were merely employees or agents of ENRC in communication with lawyers. The only documents to which privilege attached were slides prepared by ENRC's solicitors for use at Board meetings. 

Further, the judge drew a controversial distinction between circumstances when a party might be found to have reasonable anticipation of proceedings in civil cases (where a prospective defendant might anticipate facing even a wholly meritless claim), and criminal cases (when a prosecution will only be brought when there is a realistic prospect of conviction). The judge found that up until March 2013, ENRC did not reasonably anticipate criminal prosecution. The question of whether an anticipation of a criminal investigation equates to anticipation of prosecution depended upon whether there was "at the very least…some material to support the allegations of corrupt practices". ENRC's investigations were undertaken at a time when criminal investigation was anticipated, but it could not be said that it anticipated prosecution as a consequence.

Application to solicitors facing investigation

This decision serves as a reminder to solicitors facing investigation that they should not assume that all communications, or documents created, with the involvement of lawyers will be protected by privilege. In the context of investigations by the Solicitors Regulation Authority ("SRA"), the following should be borne in mind:

• Legal advice privilege will only apply to communications between lawyers and those within the client firm authorised to give instructions or receive advice. Verbatim records of interviews with individuals, for instance, may not be subject to legal advice privilege, even if conducted by a solicitor. They may only be safe from disclosure if they are covered by litigation privilege.
• Litigation privilege will only apply where adversarial proceedings are contemplated. Proceedings before the Solicitors Disciplinary Tribunal are adversarial in nature but before a Rule 5 Notice is served commencing those proceedings, there may be a lengthy period of investigation by the SRA. Wide-ranging powers are given to the SRA to conduct an investigation and compel solicitors and firms to provide information and documents. Each investigation must be looked at on its own facts, and consideration should be given to whether litigation privilege can be claimed at a point in time when a firm may not believe that an investigation will lead to referral to the Solicitors Disciplinary Tribunal. As the judge said in ENRC:

"[Previous cases] do not support the contention that as a matter of policy, where the lawyer is carrying out, or directing others to carry out, a fact-finding or evidence gathering exercise in circumstances where litigation is not in contemplation, the fruits of his or their labours should be privileged from disclosure, independently of any communication of them by the lawyer to the client, simply because the purpose of that exercise is to enable advice to be given to the client".

In conclusion, it should not be simply assumed that litigation privilege starts to apply as soon as the SRA announces that an investigation of possible acts of professional misconduct is underway. Following the decision in ENRC, that is doubly true of investigations by the SFO/police.

¹ Three Rivers District Council and Others v The Governor and Company of the Bank of England [2003] EWCA Civ 474 (Three Rivers No5)

² See for example Axa Seguros v Allianz Insurance [2011] EWHC 268; Starbev GP Ltd v Interbrew Central European Holding BV [2013] EWHC 4038 (Comm); Rawlinson and Hunter Trustees v Akers [2014] EWCA Civ 136