FinTech in Turkey: Overview
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
The Court of Appeal has handed down an eagerly awaited decision1 addressing, in particular, fundamental issues as to the ambit of litigation privilege in investigations.
The appeal sought to overturn the High Court’s decision that various communications connected with an internal investigation (including notes of interviews and forensic accounting materials) were not protected by litigation privilege. The High Court had held that litigation privilege did not apply because: a Serious Fraud Office (SFO) investigation was not sufficiently adversarial for the purposes of litigation privilege; it could not be said that litigation was in contemplation; and that even if litigation was in contemplation, the documents were not created for the dominant purpose of use in the litigation.
The Court of Appeal reversed the decision in relation to litigation privilege, holding that litigation was in reasonable contemplation from the outset of the investigation and that the materials in question (including interview notes and forensic accounting materials) were created for the dominant purpose of resisting or avoiding contemplated criminal proceedings, and so protected by litigation privilege. The Court of Appeal’s decision resets the boundaries of litigation privilege in investigations.
This article summarises the Court of Appeal’s decision and provides key practical takeaways in relation to the application of privilege to investigations.
An internal investigation was launched following whistle-blower 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 in August 2011 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.
By the time of the appeal, there were essentially three categories of documents in respect of which privilege was disputed
It was common ground that communications between a party/ 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 High Court had held that criminal investigation by the SFO should not of itself be treated as adversarial litigation for litigation privilege purposes. The Court of Appeal did not specifically comment on this conclusion but it is clear from the judgment that it considers that adversarial litigation may – depending on the facts – be reasonably in prospect whether or not a formal SFO investigation has commenced or the SFO has been notified of the matter.
The High Court held that the reasonable contemplation or onset of a criminal investigation by the SFO did not necessarily equate to the reasonable contemplation of a prosecution. Further, the Judge took the view that 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.
The Court of Appeal rejected this approach, holding that the Judge had been wrong “to suggest a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken. The fact that a formal investigation has not commenced will be one part of the factual matrix, but will not necessarily be determinative”. While the Court of Appeal cautioned that not every SFO manifestation of concern would properly be regarded as adversarial litigation, when the SFO specifically makes clear to a company the prospect of its criminal prosecution, and legal advisers are engaged to deal with that situation (as in the present case), there are clear grounds for contending that criminal prosecution is in reasonable contemplation. Further, they considered that whilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty does not in itself prevent proceedings being in reasonable contemplation.
The Court of Appeal held that on the facts, litigation (i.e. an SFO prosecution) was in reasonable contemplation when the company initiated its internal investigation and certainly when it received a letter from the SFO in August 2011. Significantly, this was held to be so notwithstanding that the letter expressly stated that the SFO was not carrying out a criminal investigation at that stage but instead made reference to “recent intelligence & media reports concerning allegations of corruption and wrongdoing by [ENRC]” and urged the company to consider carefully the SFO’s 2009 Self-Reporting Guidelines whilst undertaking its internal investigations.
At first instance, it was held that the primary purpose of the investigation was to find out if there was any truth in whistleblowing allegations and then to decide what to do if there was.
The Court of Appeal again rejected the High Court’s approach, holding that “where there is a clear threat of a criminal investigation, even at one remove from the specific risks posed by the SFO should it start an investigation, the reason for the investigation of … allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation.” Indeed, the Court of Appeal stressed that nothing in the judgment should be taken to impact adversely on the operation of the Deferred Prosecution Agreements scheme set out in Schedule 17 of the Crime and Courts Act 2013, noting that it is obviously in the public interest that companies should be prepared to investigate allegations prior to going to a prosecutor 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.
Further, the Court commented that in both the civil and the criminal context, seeking to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as resisting or defending such contemplated proceedings. This analysis reflects the approach in the earlier case of Bilta (in liquidation) v RBS  EWHC 3535 (Ch).2
The High Court held the following to be correct
Notwithstanding extensive criticism of the Court of Appeal’s decision in Three Rivers (No. 5), the Court of Appeal in ENRC considered it could not ignore the Court of Appeal’s previous determination and held that the matter was for the Supreme Court to decide. The Court noted that English law is out of kilter with other common law jurisdictions on this point and stated that “had it been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so.”
The Court of Appeal took the view that the question of whether lawyers’ working papers should be protected generally by legal advice privilege was a matter for the Supreme Court. In the meantime, legal advice privilege will only be justified if the working papers would betray the tenor of the legal advice (although there may be greater scope to argue that litigation privilege applies to such papers in light of ENRC).
The decision in relation to litigation privilege in the context of investigations with a criminal or regulatory element is to be welcomed. Not only does it clarify the ambit of litigation privilege in investigations but it also removes the distinction created by the first instance decision between civil and criminal proceedings as to when litigation is in contemplation.
The main outstanding question in relation to legal advice privilege is whether Three Rivers will be overturned and if so, when. Adopting a broader definition of “client” would give much greater protection to internal investigations and bring the English law position closer to that of other common law jurisdictions. However, the SFO decided not to appeal the decision, with the result that English law will be left with the narrow definition of client for the foreseeable future.
ENRC v SFO  EWCA Civ 2006.
In Bilta, the claimants sought documents relating to an internal investigation carried out by external lawyers but RBS argued that the internal investigation documents sought were created for the dominant purpose of use in the litigation (i.e. the HMRC assessment). The court noted that a key point in the chronology was a 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.
Ekin İnal and Ecem Naz Boyacıoğlu provide an overview of FinTech in Turkey.
During his State of the Nation Address, the President gave reassuring impetus to solving the current energy crisis and perennial load shedding that has been decimating the economy.