Cause for concern: has litigation privilege become too much of a privilege?

In the landmark judgement The Director of the Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation (ENRC) [08.05.17] the High Court held that documents prepared during an internal investigation were not protected by legal privilege.

The decision was the third of a trilogy of cases following release of updated guidance on legal privilege issued by the Law Society which raises concerns about the exercise of privilege and its potential impact on accident and other investigations by and on behalf of organisations, insurers and their insured.

Going forwards, factual investigations should be undertaken with caution as documents produced in the course of accident and other investigations may be disclosable to and/or seizable by the police and/or regulatory bodies.

What is legal privilege?

Legal professional privilege properly applied entitles a client to decline disclosure of certain confidential legal communications to third parties including the police, the Health and Safety Executive (HSE) and other regulatory bodies and enforcement agencies.

It comprises:

• Legal advice privilege which protects advice given by lawyers to their clients at any time.
• Litigation privilege which protects communications between a client and a lawyer and third parties if litigation or adversarial proceedings have commenced or are anticipated.

What has happened?

The SFO exercising its powers required ENRC to produce certain documents generated during investigations by ENRC’s solicitors into the activities of ENRC and its subsidiaries. ENRC declined on the basis that they were legally privileged. Save for one very limited part, all of ENRC’s claims to privilege over the relevant documents were rejected.

The judgment is of particular concern to criminal/regulatory defence lawyers and their clients because clients can no longer rely on legal privilege attaching to internal investigations conducted by solicitors unless they fulfil certain criteria.

What are the facts of the ENRC case?

This is a complex case but in summary, in December 2010 ENRC received a whistleblower report alleging financial irregularity in relation to the business activities of a subsidiary company and its operations in Kazakhstan and Africa.

ENRC instructed solicitors and forensic accountants to conduct an internal investigation to identify whether there had been any criminal activity.

In 2013 the SFO began a criminal investigation in to the same subject matter and demanded disclosure of all documents produced during the earlier investigation on the basis that they were not privileged being neither legal advice privilege nor litigation privilege. With minor exception, the court agreed.

What are the consequences for criminal/regulatory lawyers and their clients?

The impact of the ENRC case is concerning for regulatory defence lawyers and their clients because it is now clear that documents generated during an investigation may not be protected by legal privilege and may therefore become disclosable -  potentially with detrimental impact.

In the context of workplace manslaughter, health and safety, environmental and other investigations, it is likely that the police, HSE, Environment Agency or other regulatory bodies will now have the confidence to seek production of investigatory documents, disclosure of which might previously have been resisted on the ground of privilege.

These documents may include statements, draft statements, notes of discussions with witnesses and written records of interviews created for the purpose of internal investigations and fact finding missions.

The ENRC case appears to consolidate the scope of privilege as follows.

Legal advice privilege

• Where a client is an organisation, legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on that entity’s behalf. If this is a company, this may be only those who represent the controlling mind of the company e.g. directors or senior managers.
• Interview notes taken from employees, middle managers and non-employee witnesses may not amount to solicitors’ ‘working papers’ and therefore might not attract legal advice privilege.

Litigation privilege

• Litigation privilege requires the contemplation of adversarial litigation. It was held that an investigation by the SFO does not, on its own, amount to adversarial litigation.
• Reasonable anticipation of a criminal investigation does not amount to reasonable anticipation of prosecution unless the company had been aware of circumstances that, once discovered, made a prosecution likely.
• Documents produced for the avoidance of a criminal investigation/prosecution may not be privileged (including documents created with the specific purpose or intention of showing them to the regulator).
• Only documents prepared for the conduct of litigation attract litigation privilege. Conduct of litigation appears to relate to legal proceedings that have commenced or are reasonably contemplated.

Overall message

Extra caution is now required when conducting internal investigations to ensure that any claim to legal professional privilege is correct and justified because the authorities will now have greater confidence in challenging any potentially incorrect claims to privilege. The requirement to produce documents that were generated in the mistaken belief that they were exempt from production due to privilege may be very damaging.

Kennedys’ regulatory defence team will be happy to discuss issues arising from this judgment, including practical ways in which our clients’ interests can be protected.