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The point at which an investigation becomes sufficiently adversarial to constitute “litigation” for litigation privilege purposes has long been a grey area under English law. In SFO v ENRC1, the English High Court has handed down an important decision on the scope of litigation privilege in the context of investigations, providing an illustration of what constitutes “litigation” and when it can be said to be reasonably anticipated for the purposes of litigation privilege particularly in the criminal context.2 Going forward, corporates will need to bear in mind that, where legal advice privilege does not apply, documents produced during the course of compliance due diligence, an internal investigation and/or cooperation with the SFO – including interview notes and accountants’ books and records reports – are unlikely to be protected by litigation privilege until the point at which the corporate reasonably anticipates prosecution, which is a high bar. This article sets out the background and rationale for the court’s latest finding on privilege as well as a number of key takeaways. It also considers the subsequent case of Bilta (in liquidation) v RBS  EWHC 3535 (Ch), in which the court considered one aspect of the ENRC decision, the question of dominant purpose in the context of litigation privilege, and took a noticeably different approach.
An internal investigation was launched following whistleblower allegations of fraud, bribery and corruption. Lawyers were engaged in early 2011 to carry out a fact-finding investigation, followed by forensic accountants a few months later.
The SFO initiated discussions with the company some months after the lawyers started work following a press report. In April 2013 the SFO began a criminal investigation. As part of its investigation, the SFO sought disclosure of certain documents generated during the internal investigation, which had continued in the interim period. The company claimed that these documents were privileged, and the SFO sought a declaration from the English court that they were not.
There were four categories of documents in respect of which privileged was claimed:
Although the question of who is the client was not directly at issue in this case, the judge confirmed that the narrow definition of “client” adopted in the RBS litigation on the basis of Three Rivers No. 5 was “plainly right”, adding that any change would have to be made by the Supreme Court or Parliament.5 Only communications between lawyers and those individuals at the corporate client authorised to seek and receive legal advice on behalf of the corporate would be protected by legal advice privilege.
With regard to lawyers’ working papers, the judge repeated the position taken in the RBS litigation – namely that legal advice privilege protection over lawyers’ working papers will only be justified if the working papers would betray the tenor of the legal advice. Otherwise, a note by a lawyer of an interview with a witness who does not constitute the “client” for legal advice privilege purposes will not be privileged simply by virtue of the fact that the lawyer (rather than the client or other third party) had carried out the interview instead.
On the above basis, the interview notes were held not to be protected by legal advice privilege. There was no evidence that any of the individuals interviewed fell within the definition of “client”. Nor did the fact that the notes were made by lawyers strengthen the claim for legal advice privilege as these were merely notes of what the lawyers were told by the witnesses, and, on the evidence provided, did not betray the trend of the legal advice to the company.
The documents indicating or containing factual evidence of the legal adviser to the committee/board were found to be protected by legal advice privilege both in terms of the legal advice and the factual findings of the investigation which they provided. Although the SFO had argued that the factual findings were not privileged, the judge held that these findings were part and parcel of the confidential solicitor-client communication and therefore privileged. The judge additionally found that the documents fell within the ambit of the protection of lawyers’ working papers.
The emails with the Head of Mergers and Acquisitions were held not to be privileged even where legal advice was being sought and provided because, on the basis of the contemporaneous documents, the individual was engaged by the company at the time not as a lawyer but as a “man of business”. This confirms the need for a lawyer, acting in the role of lawyer, in the relevant communications for legal advice privilege to attach.
This decision is perhaps of greater interest for the discussion on litigation privilege in the context of investigations – something which was not pleaded in the recent RBS litigation (dealing with the scope of legal advice privilege).
It was common ground that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation attract litigation privilege so long as:
The company argued that a criminal investigation by the SFO should be treated as adversarial litigation for litigation privilege purposes. The judge, however, rejected this argument as misconceived. The SFO has a dual function as investigator and prosecutor. An SFO investigation is only a preliminary step to uncover relevant facts before any decision to is taken to prosecute. At the investigation stage the process cannot be said to be adversarial. In the judge’s view, “[t]he policy that justifies litigation privilege does not extend to enabling a party to protect itself from having to disclose documents to an investigator”. There was even less reason for the court to hold that documents prepared as part of the internal investigation, before the SFO commenced its own investigation, could be protected by litigation privilege, since there was no evidence of the company expecting to find any incriminating material and it had previously promised to provide these to the SFO in the spirit of cooperation.
The judge recognised that the test as to when litigation can be said to be anticipated is “notoriously difficult to express in words”, but noted that the person seeking to claim litigation privilege must establish that it was aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility. The reasonable contemplation or onset of a criminal investigation by the SFO (which the judge held did not constitute adversarial litigation for litigation privilege purposes) did not necessarily equate to the reasonable contemplation of a prosecution: “[t]he investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous process … so that the reasonable expectation of the one necessarily involves the reasonable contemplation of the other”. Even where allegations of criminal conduct were being investigated, prosecution only becomes a real possibility once it is discovered that there is some truth in the allegations. Here, there was no evidence that anyone at the company was ever aware – either before or after the SFO’s criminal investigation began - that a criminal offence had been committed. It could not therefore be said that anyone at the company reasonably contemplated litigation as a real likelihood rather than a mere possibility while the fact finding continued. A fear of prosecution on a “worst case scenario” was not enough to trigger litigation privilege.
The reasoning of Andrews J as to when a criminal prosecution can be said to be in reasonable contemplation was specifically endorsed by the Court of Appeal in the subsequent case of R v Jukes  EWCA Crim 176.
The judge went on to find that even if criminal proceedings were in reasonable contemplation, none of the documents in question were created for the dominant purpose of using in, or obtaining legal advice relating to the conduct of, such anticipated criminal proceedings. While the company argued that the dominant purpose of the documents was the obtaining of legal advice pertaining to the conduct of the anticipated criminal litigation, the judge was not persuaded that this was even a subsidiary purpose of the creation of the documents, let alone the dominant purpose. In the judge’s view, the primary purpose of the investigation was to find out if there was any truth in the allegations and then to decide what to do about it if there was. The dominant purpose of the accountants’ reports was to meet compliance requirements or to obtain accountancy advice on remedial steps as part and parcel of a comprehensive books and records review. On the evidence, the accountants’ engagement had little or nothing to do with the preparation of a defence to, or obtaining legal advice in respect of, prospective criminal litigation.
The judge also noted that any legal advice which was sought based on the outcome of the internal investigation would have been on how to minimise or avoid the risk of prosecution by the SFO, as opposed to on how to conduct a defence to a criminal investigation, and that avoidance of a criminal prosecution cannot be equated with the conduct of a defence to a criminal prosecution for litigation privilege purposes. Although the judge conceded that it may be possible for documents to be generated for the dual purpose of assisting a company to persuade the SFO not to prosecute and also to help the company mount a defence to criminal proceedings if that failed, the judge held that the evidence in this case did not establish such a dual purpose, let alone that the latter purpose was the dominant one. The judge also added that documents created with the specific purpose or intention of showing them to the potential adversary in litigation are not subject to litigation privilege. Given that the company had committed to share the results of its internal investigation with the SFO, it could not, at the same time, claim litigation privilege over these materials.
For all of these reasons, the judge held that the claim to litigation privilege failed on all counts.
A seemingly broader approach to the question of dominant purpose was taken in the subsequent case of Bilta (in liquidation) v RBS  EWHC 3535 (Ch). In that case, the claimants sought documents relating to an internal investigation carried out by external lawyers. The claimants did not dispute that litigation was in contemplation. (i.e. a threatened assessment by HMRC in respect of over-claimed VAT). However, the issue was whether the internal investigation documents sought were created for the dominant purpose of use in the litigation (i.e. the HMRC assessment).
The claimants argued that the internal investigation documents were not covered by litigation privilege on the basis of a statement in correspondence from the bank’s lawyers that the purpose of the investigation had been to provide a full and detailed account of the relevant facts. The bank successfully argued that the dominant purpose in producing the documents was to defend HMRC’s claim. The court noted that a key point in the chronology was a March 2012 letter from HMRC stating that it had decided (after two years of investigating) to make an assessment but was prepared to wait to consider the bank’s comments before it did so – and it was at this stage that the bank instructed external lawyers. The fact that the bank tried to cooperate with, and met with HMRC on several occasions did not preclude the internal investigation being conducted for the dominant purpose of expected litigation. It was held that the documents were brought into being for the dominant purpose of expected litigation and were therefore privileged.
In addition, the Chancellor considered that dicta in ENRC suggesting that privilege cannot attach to documents created for the purposes of trying to avoid litigation did not give rise to a general legal principle and did not reflect the commercial reality of the present case (although he did not expressly criticise the conclusion that attempts to settle prevented the litigation from being the dominant purpose on the facts of ENRC). Moreover, he stated that it is clear from the authorities that it is necessary “to take a realistic, indeed commercial view of the facts … [the bank] was not spending large sums on legal fees here in the hope that HMRC would be dissuaded from issuing an assessment. If that is properly to be regarded as a purpose of the investigation at all, it was obviously a very subsidiary purpose”.
This case provides a number of key takeaways for parties when embarking on compliance due diligence, an internal investigation and/or cooperation with the SFO.
The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd  EWHC 1017 (QB)
Note that the company was granted permission to appeal in October 2017. The appeal is due to be heard in July 2018.
Three Rivers District Council and others v Governor and Company of the Bank of England (No 5)  QB 1556
The RBS Rights Issue Litigation  EWHC 3161 (Ch)
Somewhat reassuringly, the judge did not express any view on the further observations in the RBS litigation suggesting that only individuals singly or together constituting part of the directing mind and will of the corporation can be treated for the purposes of legal advice privilege as being, or being a qualifying emanation of, the “client”, which could, if adopted, give rise to further complex preliminary issues on who is the client for legal advice privilege purposes.
Our aim is to help our clients understand the potential opportunities and challenges that COP25 may have on their business.
IMO 2020 is almost upon us. Readers are well aware of the impending switch to 0.5 percent fuel mandated by Annex VI of MARPOL which will cause an anticipated drop in HSFO demand, the potential hazards of new untested LSFO blends, the concerns around scrubber operations, the debate over open loop versus closed loop, and the myriad of other risks associated with the impending regulatory change.