Court of Appeal finds for ENRC in dispute with SFO
The Court of Appeal has now handed down its eagerly awaited judgment in The Director of the Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Limited (ENRC).
The SFO has been investigating ENRC since April 2013 for alleged bribery and corruption offences. As part of its investigation the SFO sought to compel ENRC to hand over various documents produced during its internal investigation. The SFO was victorious at first instance where the High Court (Mrs Justice Andrews) held that the majority of the documents were not privileged and made a number of controversial findings restricting the scope of litigation privilege in a criminal context. The Court of Appeal reversed the High Court's decision on various legal and factual issues.
We set out below a summary of the key points from the judgment and practical tips for preserving privilege going forward.
Litigation privilege
Litigation privilege entitles a party to withhold from disclosure confidential communications with its lawyer, or either of them and a third party, for the purpose of obtaining information or advice in connection with existing or contemplated litigation. The communications must have been made for the sole or dominant purpose of conducting that litigation; and the litigation must be adversarial, not investigative or inquisitorial.
- The Court of Appeal disagreed with Mrs Justice Andrews' decision that a criminal investigation alone could not give rise to a reasonable contemplation of litigation and overruled the distinction made between civil and criminal proceedings on the basis that it was "illusory".
- In circumstances where a regulator or criminal prosecutor has given a clear indication that a criminal prosecution or adverse finding is on the cards, and that company then engages lawyers to deal with the situation, there are clear grounds for contending that litigation privilege applies. Not all approaches from the SFO will be sufficient: it will depend on the facts.
- In this case, the Court of Appeal was satisfied that the sub-text of the correspondence and meetings between the SFO and ENRC was that if the self-reporting process did not result in a civil settlement, a criminal prosecution would follow. ENRC could therefore properly be said to have had prosecution in reasonable contemplation from April 2011 when it commenced an internal investigation into the allegations, and certainly by the time it received the SFO's letter in August 2011 urging it to consider self-reporting.
- The Court of Appeal overruled Andrews J's finding that documents created for the purpose of settling or avoiding contemplated litigation would not attract litigation privilege. Legal advice given in connection with avoiding or settling litigation, whether civil or criminal, is as much protected by litigation privilege as advice given regarding the prosecution or defence of those proceedings.
- Determining whether the dominant purpose for which the document was created was for use in the litigation remains a question of fact, and the court must take a realistic and commercial view of those facts.
- This judgment is helpful in demonstrating that documents created during an investigation will not necessarily fail to qualify for litigation privilege if there is a fact-finding element to the investigation, but the overall dominant purpose of the document must be for the litigation. If, however, documents are created for a distinct purpose other than the litigation (such as under an internal procedure) then it will be difficult to satisfy the dominant purpose test.
- In this case, the Court of Appeal was satisfied that ENRC's need to investigate the existence of corruption was a subset of its overall defence of the prosecution it contemplated would be brought by the SFO.
- The fact that ENRC had declared its commitment to engaging in a full and frank process with the SFO did not negate the fact that the dominant purpose of the documents was for use in litigation. ENRC had not shared the documents in question with the SFO, and had not therefore waived its right to assert privilege.
Legal advice privilege
- Legal advice privilege entitles a party to withhold from disclosure confidential communications between that party and its lawyers for the purpose of the client obtaining legal advice. The Court of Appeal reluctantly declared itself bound by its previous decision in Three Rivers (No.5)1 which took a restricted approach to the identity of a corporate "client" for the purpose of asserting legal advice privilege.
- Unusually, the Court went as far as to set out in some detail its objection to the rule, which it described as out of touch with the international common law.
- As things stand, only communications between the lawyer and those authorised on behalf of the corporate client to seek and obtain legal advice on behalf of the client will attract legal advice privilege. This principle has long been the basis for prosecutors, regulators and opposing parties contending that statements, interviews or other communications by corporate employees to the corporate legal advisers are not privileged where those employees are not formally the 'client' and litigation is not in contemplation.
- However, the comments of the Court of Appeal were expressed in such strong terms that we may well see further litigation to clarify this point.
Practical tips
- Keep written records of:
- when litigation (civil or criminal) is considered to be in contemplation and why
- the purpose of an internal investigation
- the purpose for which any third parties have been instructed.
- When seeking legal advice a company should keep a record of those individuals who are considered to constitute the "client", ie those who collectively or individually provide the instructions to the lawyers and receive the advice.
- In addition, and pending settlement of the issue by the Supreme Court, a company may wish to assert privilege over any communications between its employees and its lawyers, irrespective of whether litigation is reasonably in contemplation on the basis that Three Rivers (No.5) may not stand.
1 Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 5) [2003] QB 1556
