When your business is under investigation or in dispute, there are likely to be some documents you would prefer to keep private. However, investigatory powers and the court rules governing disputes often mean that is impossible.
Serious Fraud Office v Eurasian Natural Resources Corporation at appeal this year.
The only legitimate reason to withhold documents from the ‘other side’ is if the communication is legally privileged. It is a powerful concept but, despite having been a human right in law for hundreds of years, it is still the subject of heavyweight litigation. A high profile case is due in the Court of Appeal this year.
That case is between the Serious Fraud Office and the Eurasian Natural Resources Corporation Limited. ENRC is the company whose oligarch owner hired Jennifer Lopez for over £1m to sing at his son’s 800-guest wedding in May 2010 in Monaco. That may have been small change for Patokh Chodiev, the Uzbek businessman whose then £1.85bn fortune had largely been secured with two Kyrgyz business partners in resource-rich Kazakhstan. However by 2013 the company left the FTSE 100 amid reported allegations of fraud, bribery and corruption.
The SFO started to discuss potential bribery issues with ENRC in August 2011, but by April 2013 that had become a criminal investigation. As part of the ongoing criminal investigation the SFO wanted access to documents created between 2011 and 2013 by solicitors and forensic accountants relating to the activities of the company. The company withheld them and that is the subject of the current court claim.
Legal privilege
This divides into two types; legal advice privilege and litigation privilege.
Legal advice privilege covers confidential communications between a client and its lawyers, whereby legal advice is given or sought. Privilege attaches to all material forming the lawyer-client communications, even if those documents do not expressly seek or convey legal advice. It also applies to in-house legal advice, provided the in-house lawyer is legally qualified.
For example, a letter from a solicitor to a company director advising on what the company should do to comply with health and safety legislation would be covered by legal advice privilege. If there were an accident some years later and an investigation, that advice could be withheld on the grounds of privilege.
Litigation privilege protects communications between clients or their lawyers and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation. Litigation must be in progress or reasonably in contemplation and the communications must be with the sole or dominant purpose of conducting that litigation. The litigation must be adversarial, not investigative or inquisitorial.
For example, if a solicitor sent an e-mail to a defendant about what their prospects were and how much to offer in settlement of an existing court claim, that would be litigation privileged. It would not need to be disclosed under the normal court rules that require the parties to disclose to each other all documents that assist or harm each other’s case.
Underpinning these vital principles is the fundamental need to ensure that a client can speak with absolute candour to their legal adviser without fear; and thereby receive the most appropriate advice. The rules are easy enough to state but they can become difficult to interpret in practice as the case going to appeal shows.
The documents that ENRC wants to withhold
In December 2010 ENRC received a whistle blower email containing allegations of corruption and financial wrong doing. This was investigated by the company internally but the subsequent interest of the SFO came to focus on those investigations. The disputed documents that the SFO wants to see fall into four categories:
- Notes taken by solicitors of the evidence given to them by ENRC's officers, employees, former employees, subsidiaries, suppliers and other third parties (Interview Notes);
- Materials generated by forensic accountants, as part of a “books and records” review, with a focus on identifying controls and systems weaknesses and potential improvements (Accountants' Reports);
- Documents, including slides, indicating or containing factual evidence, used by solicitors to present to ENRC’s corporate governance committee and/or ENRC's board (Factual Updates); and
- Emails between a senior executive and the head of mergers and acquisitions at ENRC, who was a Swiss qualified lawyer (emails).
There was material to support a view that the people within ENRC who were investigating the allegations in 2011 and 2012 were well aware that the issue could become matter of interest to the SFO at some point and that could lead to a criminal prosecution.
The first court has found as follows in relation to categories 1-4 above:
- Interview notes: No litigation privilege arose because as of August 2011 litigation was only a possibility, not a real likelihood. The SFO investigation at that stage was only a preliminary step. Also, the documents were not created with the dominant purpose of defending that possible litigation. Legal advice privilege did not apply either because the people interviewed were not authorised to give or receive legal advice for the company. The court also considered that the content of a lawyer’s note which does not contain any legal advice is unlikely to be privileged unless it betrays the line of the advice being given.
- Accountants’ reports: Again for this category, litigation was not the dominant purpose of the reports. The dominant purpose was compliance requirements. (Legal advice privilege could not arise because the work was generated by non-lawyers.)
- Factual updates: litigation was not reasonably in prospect and the updates were not given for the dominant purpose of defending any litigation. However the slides were prepared by a lawyer to give legal advice and the facts set out in them were part of that advice; as a whole therefore the slides were legally privileged.
- The emails were sent to the recipient acting in business, rather than as a lawyer. His legal qualification does not automatically mean that everything he receives is protected; only if it was truly a communication for the purposes of taking legal advice from a qualified lawyer could they attract privilege, which in this case they were not. In connection with this category is the fraught matter of waiver. If a privileged document is shared within an organisation, that can have the effect that the advice loses its confidentiality and without being confidential nothing can be privileged. Sharing of legal advice beyond the Board is an area of danger, particularly given the speed and ease with which documents can be forwarded by e-mail. You may lose privilege by waiver, without realising it.
The decision is a fairly strict interpretation of privilege and has opened up to disclosure areas of documentation that the company may reasonably have expected to keep confidential under privilege rules, particularly the Interview Notes. The fact that the notes were taken by lawyers at significant expense suggests the company considered they were in dangerous territory and may well have expected to obtain some form of protection by privilege. ENRC has applied to the appeal court for reconsideration and all legal advisers should be keen to understand the outcome at the next stage.
The characterisation of an SFO investigation (as opposed to a prosecution) as non-adversarial was central to the decision. The judge noted that a civil claim can be made even if unfounded, whereas a criminal prosecution ought not to proceed unless there is a real basis for it following investigation. This means litigation privilege could arise in the context of a civil dispute earlier than in any criminal situation. The decision nonetheless introduces concern over what type of investigation is ‘adversarial’. It has put into some doubt whether an HSE investigation into a fatal accident would be considered adversarial for the purposes of privilege. Often companies need to consider criminal and civil claims alongside each other but what if the same documents attract privilege in a civil context but not in a criminal context? What status does an FCA investigation have and how can financial institutions take legal advice with an appropriate shelter for privileged communications?
The recent judgment peels back layers of legal privilege in some ways and although it may be that the lack of protection resulted from the specific facts of this case, the appeal decision will be closely monitored by legal advisers and in-house counsel in order that they have a clear understanding of the scope of legal privilege and can act accordingly when investigations and disputes are at the earliest stage.
Footnote – Appeal judgment September 2018
The appeal court has overturned the original judgment in some areas and restored clarity on litigation privilege. The appeal judges decided that a criminal prosecution was in reasonable prospect from April 2011 and therefore accepted a claim of litigation privilege over categories 1,2 and 4. They said “the whole sub-text 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.”
The appeal court has removed much of the doubt that the original decision introduced, making it clearer how companies can protect themselves when internal investigations are underway. There was also some discussion of legal advice privilege that may leave further questions, though. The appeal judges noted that communications between an employee of a company and the company’s lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client.
