SFO Investigations and Privilege

High Court rejects claim of privilege over documents relating to criminal investigation (The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd)

Summary

The Queen’s Bench Division has granted an application by the Serious Fraud Office (the SFO) for a declaration that documents generated during investigations by solicitors and forensic accountants into the activities of a mining company, Eurasian Natural Resources Corporation Ltd (ENRC), are not subject to litigation privilege or legal advice privilege (save in respect of one small category). For the vast majority of the documents, the test for litigation privilege failed because, amongst other reasons, the dominant purpose for which they were created was a criminal investigation rather than the necessary ‘adversarial litigation’ such as a prosecution (in the criminal realm) or a civil action. In respect of legal advice privilege, the individuals who had communicated with the solicitors were not deemed to be ‘the client’ as although they were employees of ENRC, they were not authorised to seek and receive legal advice on behalf of the corporate client. (The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB))

Practical implications

(i) Litigation privilege

This was the first case in which the Court had to consider a claim for litigation privilege in the context of criminal proceedings rather than civil. Although of course the decision may yet be appealed, it is a salutary tale about the need to show the litigation ‘reasonably in contemplation’ is properly adversarial. The mere fact that a magistrate has to be satisfied there are reasonable grounds of an indictable offence to issue a warrant to an investigative body such as the SFO is a much lower threshold than what is required to mount an actual prosecution. Any investigation by an external enforcement agency will usually be regarded as nothing more than a preliminary step to potential litigation and clients should be very mindful that documents created at this initial stage will be vulnerable to disclosure.

(ii) Legal advice privilege

In complex cases involving corporate clients with large personnel, the discipline of maintaining a clear and rigid line of instruction between individuals with the authority to act as client and the company’s lawyers can often waver. Employees in other departments or roles become involved in fact-finding, reviews and drafts and the sanctity of privilege between ‘client’ and solicitor is undermined. It is essential to identify who constitutes the ‘client group’ in the company and ensure that on a realistic basis all communications with external lawyers involve at least one individual from that group.

The principles of Legal Professional Privilege

Legal professional privilege is a principle fundamental to the administration of justice. Once it is established over a document, the privilege is absolute and cannot be overridden by any public policy rule (though it can be waived). The evidential burden of establishing privilege always lies with the party claiming it (West London Pipeline v Total UK Ltd [2008] EWHC 1729 (Comm)).

A court must determine a claim for privilege in the light of the evidence taken as a whole. This is clearly best presented by the client who gave the instructions and who can speak to their own state of mind when they were doing so. Where, as in this case, there is a gap in the evidence because, for example, the relevant individuals are no longer accessible, the court has to make a decision to the best of its ability on what evidence is available and put before it.

1. Litigation Privilege

The basis for this limb of privilege is to allow each party to litigation to prepare their case as fully as possible without the risk of any opponent being able to recover material generated in those preparations. The relevant principles for claiming litigation privilege over communications were put under the spotlight in the much-cited case of Three Rivers (see below) in which Lord Carswell laid down the following conditions:

(i) litigation must be in progress or reasonably in contemplation;
(ii) the communications must be made with the sole or dominant purpose of conducting that anticipated litigation; and
(iii) the litigation must be adversarial, not investigative or inquisitorial.

The test for what is ‘reasonably in contemplation’ can be difficult to define but the authorities agree that it is an objective one where the views of a witness or claimant to privilege are not necessarily conclusive (see Waugh v British Railways Board [1980] AC 521, Axa Seguros SA v Allianz Insurance Plc & Ors [2011] EWHC 268 and the approach was consistent in Three Rivers DC v Bank of England (No 6) [2004] UKHL 48). That said, the court must also consider the state of mind of the party claiming privilege: “…where [litigation] is neither pending nor threatened, it must be in the active contemplation of the party…” (Plummers v Debenhams [1986] BCLC 447). The party is not required to show that litigation is more likely than not but it is insufficient to demonstrate only a ‘distinct possibility’ (USA v Philip Morris [2003] EWHC 3028 (Comm)).

The rationale follows that if a document is created with the express purpose of showing it to the prospective adversary (for example, a position statement prepared for mediation), it cannot be subject to litigation privilege (Bailey v Beagle Management Pty [2001] FCA 185). Equally, as the Court held in this case, it would contradict the underlying rationale of litigation privilege if it extended to documents created in order to obtain legal advice as to how best to avoid litigation (including seeking to settle a dispute before proceedings are issued).

Generally, the trend of the courts has been towards strictly confining rather than extending the ambit of litigation privilege on the basis of public interest (see Waugh). In Three Rivers it was suggested that there should be a policy review of the justification for this limb of privilege– no review has yet taken place but the court needs to be careful to confine the use of it [54].

2. Legal advice privilege

Legal advice privilege attaches to all communications passing between the client and its lawyers acting in their professional capacity in connection with the provision of legal advice (see Three Rivers, R (Prudential plc) v The Special Commissioner of Income Tax [2013] 2 AC 185). As such, it attaches to all material forming part of the continuum of the lawyer/client communications even if those documents do not expressly seek or convey legal advice – but are part of the ‘necessary exchange of information…’ (Balabel v Air India [1988] 1 Ch 317).

There is no need for litigation to be contemplated for legal advice privilege to arise. Where the advice is being given in the context of anticipated litigation, it is nevertheless legal advice privilege which attaches if the tests for both limbs are met. If the test for legal advice privilege fails, for example the communications are between the lawyer and someone other than the client, they will not attract legal advice privilege: “interposing a lawyer in the chain of communications will not improve the client’s chances of claiming legal advice privilege…” [65].

Who is deemed to be the client?

There is strong support in the authorities for the proposition that privilege will not attach to the employee’s (or anyone else’s) communication with the lawyer unless that person is acting as the client’s agent for obtaining the legal advice (in that he has been tasked with obtaining it) (Wheeler v Le Marchant (1881), Three Rivers DC v Bank of England (No 5) [2003] QB 1556). There is a difference between employees who are merely representatives of a corporate entity, and employees who are representatives of a corporate entity in its capacity as a client. Legal advice privilege does not extend to documents obtained from third parties (internal or external) to be shown to a solicitor for advice (Wheeler, which was cited in Three Rivers (No 5)).

Although authoritative case law has still not entirely clarified the issue (as the House of Lords in Three Rivers (No 6) refused to do so), it is generally accepted that where a client is a corporation, the communication with the lawyer must be to or from a person who is authorised to seek and receive legal advice on behalf of the corporation in order for legal advice privilege to attach (The RBS Rights Issue Litigation [2016] EWHC 2759 and see The Law of Privilege (2nd Edition, 2011) (Thanki, Goodall)).

In the context of a large corporation, the Board may be considered ‘the client’ and inhouse counsel (or another identified group) deemed the client’s agent and so authorised to instruct external lawyers to advise the company: if the advice is ultimately sent to the Board, the instructions and that advice will be privileged [84]. However, it is not possible to artificially widen the agency ring further by seeking to argue that any employee of the company is ‘the client’, and that submission was specifically rejected by the Court [87]. As was stated in The RBS Rights Issue Litigation, “…the fact that an employee may be authorised to communicate with the corporation’s lawyer does not constitute that employee as the client…” (Hildyard J, [64]).

Background to the claim to privilege by ENRC

ENRC is in the business of mining and sought to expand its operations into Africa in 2009. It’s acquisition of a company named Camrose, to this end, led to controversy (and litigation in other jurisdictions) arising from allegations of corrupt practices. As a result, ENRC took the necessary steps (as one would expect) to safeguard its position and protect itself from exposure to liability or sanction arising under the Proceeds of Crime Act 2002. However, there was no suggestion that ENRC had itself perpetrated any criminal activity and ENRC’s view was that the allegations of wrongdoing as against Camrose were ‘largely unsubstantiated’. The Board of ENRC was alert to the possibility of investigation by the SFO but there were no concerns seemingly held or certainly expressed that an investigation would get anywhere near a prosecution.

Following some further allegations made by a whistleblower in December 2010, the Audit Committee of ENRC instructed a Mr Gerrard of DLA Piper (and latterly of Dechert) specifically to investigate (Mr Gerrard was a leading expert on regulatory investigations). Mr Gerrard is said to have maintained a very close relationship with the SFO and reassured his client that this relationship would hold the SFO at bay and minimise the risk of the anticipated ‘dawn raid’. Accordingly, the position of ENRC was presented to the SFO by Mr Gerrard as being one that was fully engaged with the regime of self-reporting and co-operation with the SFO. This position remained for several years during which Mr Gerrard repeatedly assured the SFO of ENRC’s continuing full support with any investigation.

Following termination of Mr Gerrard’s retainer by ENRC in 2013, the SFO ended informal discussions with ENRC in relation to its on-going criminal investigation and sought disclosure of all the documentation created in the relevant preceding years. ENRC claimed legal professional privilege over all the documentation on the following grounds:

(i) litigation privilege attached to certain categories of material it said were created with the sole or dominant purpose of anticipated ‘adversarial litigation’ following the SFO’s investigation; and

(ii) legal advice privilege attached to other categories of documents which constituted communications between the client (ENRC) and its lawyers.

The SFO applied to court for a declaration for disclosure.

No privilege attaches

Underlying reasons for the ongoing modus operandi of Mr Gerrard were speculated on by the Court but it drew no real conclusions other than to say as a result it was not tenable to seek to argue that documents created during the period of investigation by the SFO enjoyed litigation privilege because their dominant purpose cannot be said to have been for conducting ‘adversarial’ litigation – it was clearly purely an investigative context at the most. Specifically, the Court said “the investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous process…[whereby] the reasonable expectation of one necessarily involves the reasonable contemplation of the other…” [154]

In respect of documents to which legal advice privilege may attach, “the short answer is… that there is no evidence that any of the persons interviewed (whoever they were) were authorised to seek and receive legal advice on behalf of ENRC.” [177] The evidence gathered was intended to be used by ENRC to compile presentations to the SFO as part of what was considered a self-reporting process.

The category of 5 documents to which the Court held legal advice privilege did attach comprised of evidence presented in slides by Mr Gerrard to ENRC’s Corporate Governance Committee and Board.

Court Details

• Court: High Court of Justice, Queen’s Bench Division
• Judge: The Honourable Mrs Justice Andrews DBE
• Date of judgment: 8 May 2017