Privilege or sophistry?

An examination of legal privilege in internal investigations in the Asia Pacific region, in the United States and in the UK.

When is a document (a witness interview, for example) protected by privilege in an internal investigation? The SFO in the UK has in the last year taken a strong position on privilege claims, often refuting their validity. We look at policy and cases involving legal professional privilege and internal investigations across the UK, the US (including the Upjohn warning), Singapore, Hong Kong and Australia. Maintaining legal professional privilege over documents created by in-house counsel is not easy. We have pulled together our findings to create an unofficial, pragmatic code of practice designed for in-house counsel in order to strengthen their position in the event of an internal investigation.

A code of practice on legal privilege for in-house counsel.

• Keep legal advice about the investigation separate from operational advice.
• Document the dominant purpose of your legal advice.
• Avoid referring to legal advice in board minutes and papers.
• If legal advice must be discussed, the minutes should state simply that an issue involving the subject of legal professional privilege was discussed (rather than dealing with that issue in detail).
• If the legal advice must be recorded, keep it in a separate document which can be annexed to the minutes or in a separate section with the heading ‘Subject to legal professional privilege’.
• Do not refer to specific legal advice in correspondence with other parties. This includes third party vendors who might have been retained to assist with an investigation.
• Check that internal investigation policies are in place and that these create a clear chain of reporting findings, guaranteeing that legal advice is only provided to those who need it and upon confidential terms.
• Be admitted to practice and maintain a current practising certificate (or report to someone who does).
• Sign legal advices (including email advices) in your capacity as the organisation’s solicitor, never in a dual capacity.

The legal systems of the world are broadly split into those jurisdictions that recognise the concept of legal privilege and those that do not. Even within the category of jurisdictions where privilege is an entrenched part of the legal tradition, there are variations as to the source of the protection, whether the scope extends to in-house legal counsel and the circumstances under which privilege can be waived or preserved.

Conducting investigations into allegations of fraud or corruption can present serious legal and commercial risk if privilege cannot be asserted over the findings of those investigations. That risk may be compounded if boards choose to conduct fraud or corruption investigations in-house, often with compliance managers or in-house counsel reporting the findings of those investigations directly to the board. Waiving or losing privilege can have serious consequences if any conclusions (or preliminary findings) about who is culpable needs to be disclosed to a regulator before an organisation has concluded its investigation. This can have repercussions for the organisation and for the directors themselves.

In 2014, the UK’s Serious Fraud Office started warning organisations against asserting privilege over material as a way of resisting SFO fact-finding efforts in response to allegations of bribery and corruption. SFO Director David Green QC talked of privilege claims that ‘amount to a strategy of deliberate obstruction’ and indicated that the SFO will scrutinise all assertions of privilege over materials created during an internal investigation and might challenge those claims.

The SFO may start expecting corporations to hand over reports prepared by in-house counsel which summarise witness interviews – documents which traditionally in Australia, the UK and the US would attract legal professional privilege. David Green was reported by the London press in 2014 as saying that ‘claims on legal privilege on witness statements taken by external lawyers can be questionable’. SFO General Counsel Alun Milford also said that ‘the assertion of privilege over witness first accounts is unhelpful and impossible to reconcile with an assertion of a willingness to cooperate’. So is a document properly protected by privilege or is it mere sophistry?

In Singapore, the doctrine of legal privilege is seen as ‘a fundamental condition upon which the whole administration of justice rests’.

Under the Singapore Evidence Act, a legal adviser may not disclose any communication made to them by or on behalf of their client. Neither may the legal adviser state the contents or condition of any document with which they have become ‘acquainted’. The adviser may not disclose any advice given by them to their client if these events occurred ‘in the course and for the purpose of his employment as such advocate or solicitor’.

While it is unclear in certain jurisdictions whether privilege protection extends to communications with in-house counsel, the Singapore Evidence Act was amended in 2012 to extend legal advice privilege to communications between in-house counsel and their client. A legal counsel is prohibited from doing any of the following:

• disclosing communication made to them
• stating the contents or conditions of any document with which they have become acquainted
• disclosing any legal advice given to any officer or employee in the entity, in the course of and the purpose of their employment.

The Singapore Evidence Act defines legal counsel as ‘a person…who is an employee of an entity employed to undertake the provision of legal advice or assistance in connection with the application of the law or in any form of resolution of legal disputes’. This allows for communication with inhouse counsel to be privileged within a group of companies and reflects the commercial practice that legal counsel are often employed by one corporate entity but provide advice to a number of companies in the group.

The 2012 amendments were made to enhance Singapore’s stature as an international hub for legal and commercial services.

In Australia, legal professional privilege is seen as a substantive right that cannot be abrogated by statute. Australia has adopted the ‘dominant purpose test’ (in line with other Common Law jurisdictions) now enshrined in the Uniform Evidence Acts.

In-house counsel conducting internal investigations must be careful to maintain the confidence in the documents or communications over which privilege is to be asserted. The issue of legal professional privilege can be difficult for in-house or corporate counsel, because of the perceived difference in the role that in‑house counsel fulfil, as opposed to an outside lawyer. Throughout investigations, in‑house counsel must be vigilant in maintaining independence and segregating legal advice from other considerations facing the organisation.

Where a decision has been made to investigate an allegation or complaint in-house, and – if the issue was raised by a whistleblower – adequate protections are in place, it is possible that a company-led investigation will not be covered by legal professional privilege. The current trend of decisions in Australia is that a report into an incident or investigation prepared or commissioned by an in-house lawyer may not be considered by a court for the ‘dominant purpose’ of providing advice or for use in litigation. This is because in most cases those reports have multiple purposes.

Even where it is accepted that the chief reason for the report or investigation is for the purpose of providing advice or for use in anticipated litigation, Australian courts have not accepted this as the dominant purpose for the report of an investigation. Why is this? The New South Wales Court of Appeal explained it here, ‘an in-house solicitor is, by reason of his or her position, more likely to act for purposes unrelated to legal proceedings than an external solicitor’ (Sydney Airports Corp Ltd v Singapore Airlines Ltd [2004]). Tamberlin J stated that an in-house counsel ‘may be in a closer relationship to the management than outside counsel and therefore more exposed to participation in commercial aspects of an enterprise’ (Seven Network Ltd v News Ltd [2005]).

To best ensure privilege can be asserted, any investigation has to be properly established so that queries from a regulator can be satisfactorily dealt with.

A word of caution concerning the voluntary disclosure of compliance protocols or manuals to regulators in order to demonstrate that adequate controls are in place: in 2015, the New South Wales Supreme Court held that disclosing a compliance manual (and relying on a course of conduct in obtaining and acting on legal advice in order to substantiate its defence and avoid relief being sought) amounted to a waiver of privilege in relation to that legal advice (Australian Securities & Investment Commission v Park Trent Properties Group Pty Ltd [2015]).

It is important to be absolutely clear in setting out the parameters and scope of any investigation. Doing this at the outset might assist in establishing a claim for legal professional privilege over material produced during the course of the investigation. The following (rather lengthy) example illustrates this point.

In 2014, the Full Court of Australia’s Federal Court came to a decision on Bartolo v Doutta Galla Aged Services Ltd. Mr Bartolo, an employee of Doutta Galla Aged Services (DGAS), challenged DGAS’s assertion of privilege over a report prepared by solicitors commissioned to investigate allegations made against Mr Bartolo. Mr Bartolo claimed that, as the report was made during an investigation separate from the proceedings, it was not produced for the dominant purpose of obtaining legal advice or use in litigation, and he sought disclosure. The Federal Circuit Court held that the dominant purpose of the investigation was to provide legal advice and the report was subject to legal professional privilege. However, the Court found DGAS had waived privilege when it set out the reasons for Mr Bartolo’s dismissal in its defence and referred to the board’s recommendations to dismiss Mr Bartolo – which were based on the findings of the investigation.

The Bartolo v DGAS decision highlights the principles of privilege in relation to documents produced in internal investigations and the circumstances in which such privilege will be waived. It is a reminder to organisations to be clear about (and state clearly) where documents are prepared for obtaining advice or in preparation for litigation, and to have a clear understanding of the circumstances in which the privilege will cease to apply, particularly in the context of subsequent legal proceedings.

The importance of clarity in the status of documents was underlined in another case: the Supreme Court of Western Australia rejected a claim for privilege concerning communications between accountants and the company secretary (who was also the company solicitor for the purpose of overseeing investigations in preparation for the proceedings) (Belle Rosa Holdings Pty Ltd v Hancock Prospecting Pty Ltd (unreported, 2105 of 1992). The court held that the communications were made for mixed purposes by the company secretary, who was not acting in his capacity as in-house solicitor at the relevant time.

In 1981, the US Supreme Court held that the attorney-client privilege is preserved between the company and its counsel when its counsel communicates with the company’s employees, despite the rule that communications with third parties constitute waivers of the attorney-client privilege.

This judgment has led to established practice in an internal investigation whereby counsel (in-house or external) informs the interviewee that they represent the company alone and not the interviewee as an individual. This is known as ‘the Upjohn warning’. The interviewee is also told that the attorney-client privilege over communications between counsel and interviewee belongs solely to, and is controlled by, the company. Finally, counsel informs the interviewee that it is the company’s prerogative to choose to waive this privilege and disclose what the interviewee says to a government agency or other third party.

On that basis, the interview notes recorded by counsel are legally privileged, especially where they are not a verbatim account of what transpired but contain the impressions formed by the lawyer.

Taking steps to ensure privilege is maintained should always be a key consideration for the investigation team.

In 2014, there were several challenges in the US to privilege assertions over materials in connection with internal investigations or the provision of compliance advice. One example can stand for all.

The US Court of Appeals for the DC Circuit affirmed that attorney–client privilege will apply to internal investigation files only where ‘obtaining or providing legal advice was one of the significant purposes of the internal investigation... even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion’ (Kellogg Brown & Root, Inc No. 14-5055, 2014).

In 2015, the Court of Appeal in Hong Kong made it clear that internal confidential documents created within a company for the dominant purpose of obtaining legal advice would attract legal advice privilege.

The ‘client’ for external lawyers is the company and is not restricted to the legal department and/or the board of directors of a company. The court recognised that the legal department of the company was unlikely to have all the knowledge and skills required to put together suitable instructions for external lawyers and stated that there is a need to protect the process of the gathering of information from employees of different departments or various levels for the purpose of obtaining legal advice. (Citic Pacific Limited v Secretary for Justice and Commissioner of Police [2015].)

The court saw this as a fundamental right protected by article 35 of Hong Kong’s Basic Law. In taking this position, Hong Kong has departed from the narrow definition of ‘client’ laid down by the English Court of Appeal (Three Rivers District Council v Governor and Company of the Bank of England (No 5) [2003]).

Previously published: An earlier version of this article by Ben Allen was published on financierworldwide.com in July 2015