In a significant win for companies and their counsel everywhere, the English Court of Appeal in a landmark decision effectively preserved the boundaries of litigation privilege for companies investigating allegations of wrongdoing.
On Sept. 5, in SFO v. ENRC, the Court of Appeal unanimously overturned last year’s highly controversial initial High Court judgment in favor of the Serious Fraud Office. That ruling gave the SFO the right to legally obtain volumes of documents that mining company ENRC argued were protected from disclosure by litigation privilege, because they were generated during the company’s own internal investigation into allegations of fraud and corruption.
The documents at issue included notes from interviews conducted by legal advisers and documentation of ENRC’s books and records created by ENRC’s forensic accountants. As part of a formal criminal investigation the SFO initiated in 2013, the agency requested the documents’ disclosure.
The heart of the case concerns what documents U.K. law covers under “legal advice privilege” and “litigation privilege.” Whereas legal professional privilege protects confidential communications between a lawyer and a client for the primary purpose of giving or receiving legal advice, litigation privilege more broadly protects communications between a company and its legal adviser, or even a third party, where the “dominant purpose” is to defend legal proceedings, so long as legal proceedings are reasonably anticipated.
The first instance ruling by the High Court, in finding in favor of the SFO, held that the documents in question had been created at too early a stage for criminal proceedings to be “reasonably contemplated.” The High Court further held that the “dominant purpose” test had not been met.
“The dominant purpose for which those documents were created was to enable reports to be prepared to show to the SFO and presentations to be made to the SFO, at a time when the relationship was collaborative rather than adversarial,” the High Court judgment read. In other words, the court held, companies should not expect the same level of privilege in an investigation as in adversarial litigation—such as a civil or criminal proceeding.
ENRC appealed and won its case last week. “This historic ruling by the Court of Appeal is significant not just for ENRC, but for any company faced with undertaking an internal investigation in response to a whistleblower or other allegation of wrongdoing,” says Michael Roberts, a partner at Hogan Lovells who represented ENRC in the case.
“It is critical that companies are not penalised for acting responsibly and are able to instruct lawyers to conduct investigations without fear that the authorities will later be able to demand all of the lawyers' work product,” Roberts adds. “Following this ruling, it will remain for the company to decide whether, and to what extent, it is prepared to waive privilege.”
“This historic ruling by the Court of Appeal is significant not just for ENRC, but for any company faced with undertaking an internal investigation in response to a whistleblower or other allegation of wrongdoing.”
Michael Roberts, Partner, Hogan Lovells (representing ENRC)
A key finding by the Court of Appeal was that criminal proceedings, in fact, were “reasonably contemplated” from the point at which ENRC began its internal investigation following a whistleblower allegation—well before the SFO commenced its formal criminal investigation in April 2013. The Court of Appeal noted 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.” Litigation privilege, thus, applied.
In one example, ENRC’s general counsel in March 2011 documented that he believed ENRC was firmly on the SFO’s radar and that he expected an investigation “in due course,” which was why he had “upgraded [ENRC’s] dawn raid procedures.” In another example, ENRC’s head of compliance in April 2011 predicted an “SFO dawn raid ... before summer’s over.”
Lessons for compliance
The broader message that ENRC’s documentation efforts reveal to other compliance officers and corporate counsel is the importance of always documenting the decision-making process—whether concerning a civil or criminal proceeding—to ensure an audit trail.
U.K. law firm Burges Salmon in a blog post provided some other helpful recommendations that companies should consider to improve the chances of asserting privilege over documents generated during an internal investigation. First, it recommends that the company together with legal counsel should actively consider at the outset whether—based on the allegations and the information available—civil and/or legal proceedings are reasonably contemplated. “If they are, this should be recorded in the terms of engagement with the external legal adviser and also in the business’s internal reports, together with an explanation of what those proceedings are and the reasons for their contemplation,” the blog post states.
Second, if no proceedings seem likely at the outset, but that subsequently changes, “this should be recorded in writing by the investigation team,” Burges Salmon recommends in the blog post. “Again, an explanation for that change in view should be provided.”
Third, it recommends that all privileged internal investigation documents be marked “confidential and legally privileged,” and distribution of the investigation documents should be carefully controlled. “
Judith Seddon, co-head of the London international risk practice of law firm Ropes & Gray, notes that the decision is “a vital acknowledgment by the Court of Appeal that legal professional privilege is not merely a rule of evidence but a substantive and fundamental right and an important check on the power of the state. This decision gives companies assurance that “when dealing with complex issues of alleged corporate wrongdoing, they are able to engage freely and frankly with their legal counsel and other advisers.”
“Given that the inability to assert privilege in one jurisdiction can have—often severe—collateral ramifications in others, the significance of this decision will stretch well beyond the United Kingdom,” Seddon adds.
The Court of Appeal decision comes at a time when enforcement bodies—especially in the United States and the United Kingdom—have grown increasingly concerned that companies under investigation may be hiding critical evidence under the guise of “privileged” documents. “In a world where regulators increasingly investigate companies and individuals, and where the consequences (including criminal sanctions) can be very serious, this judgment clarifies the extent of the fundamental legal safeguard of privilege,” says Ruth Cowley, a partner with law firm Norton Rose Fulbright.
The overarching significance of the ruling was best summed up by the Court of Appeal: “It is … obviously in the public interest that companies should be prepared to investigate allegations from whistleblowers 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.”
Whether the SFO will appeal to the Supreme Court is not certain at this time. “This is an important Court of Appeal judgment concerning the scope of legal professional privilege, especially as it applies to material gathered during the course of a company’s internal investigation,” an SFO spokesperson told Compliance Week. “We will be studying it carefully and considering its implications for the Office.”