The Serious Fraud Office v Eurasian Natural Resources Corporation Ltd

Litigation privilege: when will criminal proceedings be reasonably in contemplation? 

The Court of Appeal disagreed; Andrews J had been wrong to decide that a criminal prosecution was not reasonably in prospect once the SFO had written its letter of 10 August 2011. In their view, criminal proceedings were in reasonable contemplation when ENRC initiated its investigation in April 2011, and certainly by the time it received the SFO’s August 2011 letter. They reached this conclusion as follows: 

• Andrews J's distinction between civil and criminal proceedings was "illusory". While civil proceedings could be brought without foundation, there was no suggestion that the threat of criminal prosecution was anything other than extremely serious. It would have been 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 a solicitor to investigate the circumstances of any alleged offence.
• While not every SFO manifestation of concern would be regarded as adversarial litigation, when the prospect of criminal prosecution is specifically made clear to a company, and legal advisers are engaged to deal with that situation, there is clear ground for arguing that criminal prosecution is in reasonable contemplation. While a party anticipating possible prosecution would often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty did not itself prevent proceedings being reasonably in contemplation.  
• The fact that the process was at an early stage did not mean the SFO was not taking a serious and concerted interest in ENRC's activities. In addition, while ENRC's lawyers' view on the privilege status of the investigation was not conclusive, that correspondence, together with the other contemporaneous documents, indicated that ENRC thought there was a serious risk of criminal prosecution.

As such, the Court of Appeal held that the whole subtext of 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. 

Litigation privilege: dominant purpose

Crossing the litigation line does not guarantee that documents created from that date will be covered by litigation privilege; they must have been created for the dominant purpose of being used in the conduct of such litigation, i.e. for use in the anticipated criminal prosecution.

Andrews J considered that none of the documents satisfied this test. At the time that external lawyers were instructed, the primary purpose of the investigation was fact-finding. ENRC's focus was on preparing for an investigation and to address compliance and regulatory issues. The documents were not being gathered to form part of a defence brief. 

Furthermore, she held that documents created with the specific purpose or intention of showing them to the potential adversary were not subject to litigation privilege. In her view litigation privilege did not extend to third party documents created in order to obtain legal advice as to how to avoid contemplated litigation, even if it entailed seeking to settle a dispute before proceedings were issued. Accordingly, Andrews J held that the overwhelming evidence was to the effect that the dominant purpose for which certain documents were created was to enable reports to be prepared to show to the SFO and presentations to be made to them in a relationship that was collaborative rather than adversarial. 

The Court of Appeal disagreed. Andrews J had made errors in considering the current state of the law on dominant purpose, and in her factual analysis of the evidence. This had led her to reach the wrong conclusion on dominant purpose. 

The Court of Appeal considered that, having found that a criminal prosecution was reasonably contemplated at the time lawyers were instructed to investigate, the different purposes had to be viewed in that context: "the issue becomes whether it would have been reasonable to regard ENRC’s dominant purpose as being to investigate the facts to see what had happened and deal with compliance and governance or to defend those proceedings." While companies will want to ensure high ethical standards, "the "stick" used to enforce appropriate standards is the criminal law …… where there is a clear threat of a criminal investigation…. the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation." 

The Court of Appeal also dismissed the settlement argument. The fact that solicitors prepare a document with the ultimate intention of showing it to the opposing party does not automatically deprive the preparatory work undertaken of litigation privilege: "In both the civil and criminal context, 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."

In any event, the Court disagreed with Andrews J's conclusion that there was overwhelming evidence that certain documents were created for the specific purpose of being shown to the SFO. While ENRC may have led the SFO to believe that it may in the future waive privilege in such material, ENRC never actually agreed to disclose those materials. The documents were brought into existence for the dominant purpose of resisting or avoiding those proceedings. The same could be said of the forensic accountant's documents.

Legal advice privilege

In considering the question of who constitutes the "client" for the purposes of legal advice privilege, Andrews J applied Three Rivers (No 5) in its most restrictive sense. As such, she rejected the argument that instructions to a lawyer were broad enough to encapsulate the communication of relevant facts by any employee authorised by a company to provide them to the lawyer. Unless the employee interviewed was specifically authorised to instruct external lawyers or to receive their advice, communications between the lawyers and other employees, even if authorised by the company to provide information to the lawyers, were not covered by legal advice privilege. 

As to the question of whether certain documents constituted lawyers' working papers, Andrews J held that the protection afforded to those papers was justified if, but only if, they would betray the tenor of the legal advice. Whether that test was satisfied was ultimately an evidential question. On the facts before her, she did not consider that the test had been satisfied. The claim for legal advice privilege over the interview notes therefore failed. 

Although the Court of Appeal decided that they were bound by Three Rivers (No 5) and so the issues raised by the appeal on this point had to be decided by the Supreme Court, their analysis of the decisions in Three Rivers (No. 5) and their thinking on each of the questions raised is instructive.

In looking at what Three Rivers (No 5) actually decided, the Court considered that it did decide that communications between an employee of a corporation and the corporation's lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client. Whether that decision was wrong was a matter for the Supreme Court, although they then went on to consider the question.

In their view, it was necessary to look at the purpose of legal advice privilege, rather than 19th Century authorities, to answer that question, i.e. the ability to obtain legal advice "without fear of intrusion". This public policy rationale applied just as much to large multinational corporations as it did to small businesses and individuals. However, whereas the "client" issue presents no problem for individuals and small businesses as the individual or Board will usually be in a position to provide that information direct to the lawyer, that is not the case for large corporations. There, the information is unlikely to be in the hands of the Board or those appointed to seek and receive legal advice. If a large corporation is unable to direct its lawyers to the employees who hold the information they need for the purposes of advising the Board without the protection of legal advice privilege, then it would be in a less advantageous position than a small business. In their view, the rule should be applied equally to all clients regardless of their size or reach.  

The Court of Appeal also noted that English law on the "client" issue was out of step with international common law, and referred to contrary decisions in Singapore and Hong Kong. In their view there should be commonality between the laws of common law countries in areas such as legal professional privilege. 

The Court of Appeal therefore indicated that if it had been open to them to depart from Three Rivers (No. 5), they would have been in favour of doing so. 

However, on the issue of whether the answers would have been different if the employees in question were ex-employees at the time of the communication, the Court of Appeal indicated that information obtained from ex-employees should be treated no differently to that of third parties. As such, it could not be covered by legal advice privilege. Once again, however, this was an issue to be considered if and when the Supreme Court chose to do so in the context of the correctness of Three Rivers (No. 5).

The Court of Appeal considered Andrews J's view that lawyers' working papers were only protected by legal advice privilege if they betray the tenor of that legal advice. While the issue did not strictly arise, it had been submitted that all that was required for lawyers' working papers to be privileged was that they were confidential documents created by the lawyer for the purposes of giving legal advice. Since the relevant interview notes were covered by litigation privilege, it was not necessary to resolve the issue but the Court of Appeal said it would be better for the Supreme Court to do so when considering legal advice privilege.

Implications

That said, the judgment on litigation privilege is an indication of the more commercial approach that the courts appear to be taking with regard to privilege and investigations. In deciding when the litigation line was crossed the Court of Appeal relied heavily on the SFO's August 2011 letter. It was that letter that made it clear that there was a prospect of prosecution. However, the Court of Appeal allowed the line to be extended to April 2011, when the internal investigation was initiated, and relied on contemporaneous evidence that showed that criminal prosecution was reasonably contemplated by then.  

That finding confirms the importance of properly documenting your claim to litigation privilege. All the evidence should support the contention that the corporate believed litigation to be in reasonable contemplation. Lawyer's correspondence confirming this will help, but will not be determinative. Internal communications, retainer letters, and factors such as whether steps were taken to preserve evidence will be crucial. 

A more commercial approach was also evident in the Court's application of the dominant purpose test. ENRC, and the decision of Sir Geoffrey Vos in Bilta (see our briefing) indicate that, provided you can demonstrate that you were fact-finding for the purposes of any contemplated criminal prosecution/enforcement action, the dominant purpose test should be satisfied. However, and as was made clear in both cases, this question will always be fact dependent. 

Although each case will be decided on its own facts, the cases indicate that the courts are mindful of the importance of allowing corporates to conduct investigations "without fear of intrusion". Indeed, as the Court of Appeal in ENRC commented: "It is, however, obviously in the public interest that companies should be prepared to investigate allegations from whistle-blowers 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 and consequences of their investigation. Were they to do so, the temptation might well be not to investigate at all, for fear of being forced to reveal what had been uncovered whatever might be agreed (or not agreed) with a prosecuting authority.”

Author: Lianne Sneddon

• The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017
• The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006
• USA v Philip Morris Inc. [2003] EWHC 3028 (Comm)
• Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 5) [2003] QB 1556
• Bilta (UK) Limited (in liquidation) v. Royal Bank of Scotland [2017] EWHC 3535 (Ch)
• R (on the application of AL) v Serious Fraud Office [2018] EWHC 856 (Admin)