INSIGHT

A development from the English Court of Appeal regarding legal professional privilege in internal investigations

By Rachel Nicolson
Anti-bribery & AML International Business Obligations Litigation Risk & Compliance

In brief

In a recent judgment, the English Court of Appeal reversed a controversial High Court decision that had severely limited the application of legal professional privilege in internal investigations under English law. The decision has consequences for Australian corporates conducting cross-border investigations into potential criminal misconduct, as well as more generally for the development of the law of legal professional privilege in Australia in relation to internal investigations. Partner Rachel Nicolson, Senior Overseas Practitioner Christopher Kerrigan, Associate Charlette Bunn and Law Graduate Amelia van der Rijt report.

How does it affect you?

  • The Court of Appeal found that legal professional privilege applied to documents generated during an internal investigation into alleged criminal conduct, even though the corporation was in the process of discussing the possibility of self-reporting to a criminal investigative agency (the UK Serious Fraud Office (SFO)). This overturned a controversial High Court decision that had significantly curtailed the availability of legal professional privilege in internal investigations under English law. For Australian corporates subject to the jurisdiction of UK enforcement agencies, the Court of Appeal decision is a welcome development.
  • The Court of Appeal also reaffirmed the public interest in allowing companies to conduct internal investigations into potential misconduct under the protection of legal professional privilege, in order to encourage companies to investigate the conduct rather than 'turning a blind eye'. This is a timely reaffirmation of the public policy rationale, given the increasing criticism corporations in Australia and abroad have faced for making claims to legal professional privilege over documents generated during an internal investigation.
  • Although the tests for legal professional privilege are different under English and Australian law, the Court of Appeal decision is likely to be of influence in Australia, as Australia further develops its own case law in relation to determinations of what the 'dominant purpose' of documents created during an investigation is and at what point proceedings become 'anticipated' for the purposes of litigation privilege.
  • The decision also illustrates how legal professional privilege claims are both fact- and jurisdiction-sensitive. As cross-border investigations become increasingly common, it is essential to understand how the laws relating to legal professional privilege apply in the jurisdictions in which Australian corporates operate, particularly those with strong enforcement track records such as the US and the UK.
  • From a practical perspective, the decision is also a reminder of the importance of planning and organising how an investigation is conducted with care in order to maximise a claim to legal professional privilege, even where it is possible that a self-report may be made to an enforcement agency or regulator in due course.

Background

SFO v ENRC [2018] EWCA Civ 2006 is an English Court of Appeal decision relating to an ongoing investigation by the SFO into Eurasian Natural Resources Corporation Limited (ENRC) for alleged wrongdoing in Kazakhstan and Africa. In December 2010, ENRC received an email from an apparent whistleblower containing allegations of bribery and financial wrongdoing. This led ENRC to instruct lawyers and forensic accountants to carry out an internal investigation into the allegations. In 2011, the SFO become aware of the alleged wrongdoing and contacted ENRC, drawing its attention to the SFO's self-reporting guidelines. Lengthy discussions then followed between the SFO and ENRC, with the SFO characterising these as part of a self-reporting process. In April 2013, the SFO announced that it was commencing a criminal investigation.

As part of its investigation, the SFO sought to compel ENRC to produce a range of documents. As noted by the High Court, the SFO's powers of compulsion do not extend to documents that are subject to legal professional privilege.1 ENRC refused to produce the documents, contending that they were subject to litigation privilege, legal advice privilege, or both. The documents that the SFO sought fell into four categories:

  • notes taken by ENRC's lawyers of interviews with ENRC's employees, former employees, subsidiaries, suppliers and other third parties;
  • material generated by forensic accountants, as part of a 'books and records' review, carried out with a focus on identifying controls and systems weaknesses and potential improvements;
  • documents indicating or containing factual evidence presented by the lawyers who had conduct of the investigations, to ENRC; and
  • emails between a senior executive and the head of mergers and acquisitions at ENRC, who was a Swiss-qualified lawyer.

The SFO applied to the High Court to rule on the privilege claims. In its judgment the High Court rejected the vast majority of ENRC's claims to litigation and legal advice privilege. In relation to litigation privilege, it found that:

  • ENRC failed to establish, on the facts, that it was 'aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility' at the time at which the documents were created;2 and
  • the dominant purpose of the communications had not been to conduct or prepare for litigation but rather to avoid it (which was not a purpose for which litigation privilege would apply),3 and because the intention had always been to show the materials to the SFO.

In relation to legal advice privilege, Justice Andrews held that the privilege did not apply to notes of interview with employees because the employees did not qualify as being 'the client'.4 Under English law, legal advice privilege may only apply to confidential communications between a lawyer and a client for the purpose of giving or obtaining legal advice, and, in a corporate context, employees will only be regarded as being part of the 'client'  for this purpose, to the extent that they are authorised to seek advice and instruct lawyers. Those employees interviewed did not meet that definition.

The Court of Appeal's decision

The Court of Appeal allowed the appeal in relation to litigation privilege, finding that:

  • Criminal proceedings were reasonably in contemplation at the time the documents were created and from an early stage of the company's internal investigation once the SFO had written a letter to the company.5 In reaching this determination, the Court of Appeal found that litigation privilege existed over most of the documents in issue, noting that:

"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".6

  • The dominant purpose of the documents was to prevent or deal with litigation and avoiding or settling litigation was a purpose that ought to be protected by litigation privilege.7 The Court of Appeal also said that Justice Andrews had been wrong to conclude that ENRC had agreed to share the documents at issue with the SFO.8

Significantly, the Court of Appeal held:

“It is…obviously in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists, prior to going to a prosecutor such as the SFO, 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, for fear of being forced to reveal what had been uncovered whatever might be agreed (or not agreed) with a prosecuting authority”.9

In relation to legal advice privilege, the Court of Appeal found it was bound to follow the House of Lords' decision in Three Rivers No 5. Namely, that communications between an employee of a corporation and the corporation's lawyers could only ever be privileged to the extent that the employee was authorised to seek advice and instruct lawyers. However, the Court of Appeal was critical of this decision, suggesting that in the modern world it is necessary to cater for legal advice sought by large companies where the board and those it appoints would not be the only people to seek and receive legal advice.10 The Court of Appeal said that had it been open to it to do so, it would have been in favour of departing from that decision. Australian courts have not adopted such a narrow interpretation of the 'client' for the purposes of establishing legal advice privilege.

This Linklaters' article provides a more detailed review of the case's history and decision.

Impact for Australian corporates

While the Court of Appeal stated clearly that determinations of legal professional privilege will always turn on the facts, this decision will be welcomed by those Australian corporations subject, or potentially subject, to investigations by UK authorities.

Domestically, the decision is also likely to be of more general influence. Although the tests for legal professional privilege under Australian and English law have diverged (particularly in relation to legal advice privilege and the concept of the 'client'), in relation to the application of litigation privilege, two of the principal issues in dispute in ENRC v SFO were:

  • what the 'dominant purpose' of the creation of the documents the subject of the proceedings was; and
  • whether criminal legal proceedings were reasonably in contemplation at the time the documents were created.

Australian law also applies a 'dominant purpose' test in relation to both legal advice and litigation privilege11 as well as a similar condition that proceedings be 'actual or anticipated' at the time of the creation of the document.12 The Court of Appeal's decision affirms that avoiding or settling litigation is a purpose that ought to be protected by litigation privilege and that legal proceedings can become reasonably contemplatable at a relatively early stage of an investigation.

Given the proliferation of internal investigations in Australia and a push by Federal and State Governments and regulators to encourage companies to 'self-report' suspected misconduct at an early stage,13  the decision of the Court of Appeal is likely to be of influence to the Australian judiciary, enforcement agencies and regulators in how the issue of legal professional privilege is approached where there is early engagement with an enforcement agency or a regulator.

It is a particularly timely decision given the current climate in Australia, where there is increasing criticism of corporations for being too 'legalistic' in their interactions with enforcement agencies and regulators. An aspect of this criticism is often founded on a perception that corporations are making improper 'blanket' claims to legal professional privilege over documents generated during internal investigations.

Next steps

The Court of Appeal did not grant leave to appeal and the SFO has recently announced that it will not appeal the judgment.

The Court of Appeal's decision will impact ongoing investigations by the SFO and other UK agencies. It is also likely to influence judicial decisions and the approach of enforcement agencies and regulators in Australia.

Whilst the decision will be welcomed by Australian corporates, it is also a reminder of some important practicalities when undertaking investigations. These include:

  • obtaining legal advice at an early stage, before commencing the investigation;
  • ensuring that the agreed purpose of the investigation is clear and documented; and
  • conducting the investigation in a manner that maximises the prospects of claiming legal professional privilege (with reference to cross-jurisdiction considerations, where relevant).

 

Footnotes

  1. SFO v ENRC [2017] EWHC 1017, [5].
  2. Ibid, [56].
  3. Ibid, [61].
  4. Ibid, [90], applying Three Rivers DC v Bank of England (No 5) [2003] QB 1556.
  5. SFO v ENRC [2018] EWCA Civ 2006, [91]
  6. Ibid, [93].
  7. Ibid, [102].
  8. Ibid, [112].
  9. Ibid, para [116].
  10. Ibid, para [127].
  11. For example, Evidence Act 1995 (Cth), s 118 and 119 and Esso Australia Resources Ltd v Commissioner of Taxation (Cth) (1999) 201 CLR 49.
  12. For example, Evidence Act 1995 (Cth), s 118 and 119 and Esso Australia Resources Ltd v Commissioner of Taxation.
  13. See, for example, the CDPP and AFP Best Practice Guideline: Self-reporting of foreign bribery and related offending by corporations (2017).