On 8 May 2017, Mrs Justice Andrews DBE handed down judgment in the case of The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd. (SFO v ENRC). This case has consequences for the conduct of internal investigations and has sought to define the boundaries for Legal Advice Privilege and Litigation Privilege in the context of corporate internal investigations into possible criminal conduct.
In late April 2013, the SFO began a criminal fraud, bribery and corruption investigation into ENRC in Kazakhstan and a country in Africa.
As part of the criminal investigation, the SFO exercised its powers pursuant to s.2 (3) of the Criminal Justice Act 1987 and issued notices against ENRC, to compel the production of documents. The SFO’s powers of compulsion do not extend to documents which the recipient of the notice “would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court” (see s.2(9) CJA 1987).
The case which Mrs Justice Andrews had to consider was a claim by the Director of the Serious Fraud Office for a declaration that certain documents generated by solicitors and forensic accountants during internal investigations undertaken between 2011 and 2013 were not subject to legal professional privilege.
Documents over which Privilege was Claimed
ENRC claimed litigation privilege documents drafted in the early stages of the company's investigation. None were found by the Judge to attract Legal Professional Privilege for various reasons. One category was notes from interviews conducted by the company’s lawyers with employees and others. The SFO asserted that these are not covered by litigation or advice privilege. Mrs Justice Andrews DBE agreed with them.
The Claim for Litigation Privilege
Communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation attract litigation privilege. The circumstances in which litigation privilege can be claimed are:
- Litigation is in progress or reasonably in contemplation
- The communications are made with the sole or dominant purpose of conducting that anticipated litigation
- The litigation must be adversarial, not investigative or inquisitorial
It was held ENRC needed to establish that it was aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility. Mrs Justice Andrews found that criminal proceedings were not even a "distinct possibility", let alone a real prospect at the time the documents were created and so ENRC was unable to satisfy the test.
In order to commence a criminal prosecution, the SFO would need to satisfy itself that both the evidential and public interest stages of the Code for Crown Prosecutors had been met. The court found that whilst ENRC had reasonable contemplation of a criminal investigation, that did not necessarily equate to a reasonable contemplation of a criminal prosecution (i.e. litigation). The court however did leave open the possibility that there may be such cases but that will depend on the facts.
The court also rejected ENRC’s submission that litigation privilege extends to encompass documents created as part of an internal investigation in order to obtain legal advice as to how best to avoid contemplated litigation.
The Claim for Legal Advice Privilege
ENRC also argued that the notes were covered by advice privilege and secondly that they represented lawyers' work product. The court rejected the first strand of this argument on the basis that they were communications with third parties and therefore did not attract advice privilege. Since the notes contained no advice and were no more than a record of what the lawyers were told, the court also rejected the argument that they were privileged work product.
What this means for Internal Investigations
ENRC has indicated that it intends to seek leave to appeal. In the meantime, litigation privilege in internal investigations will be construed very narrowly after this judgment.
At the time ENRC began its internal investigation the SFO's policy on self-reporting was governed by a set of guidelines that have since been replaced. At that time, in return for full and frank cooperation by a company, the SFO might agree to a civil settlement in lieu of prosecution. This practice was a means of avoiding litigation altogether; one of the reasons the judge gave for finding that litigation privilege did not attach to the internal investigation notes. The SFO now can enter into Deferred Prosecution Agreements (DPAs), a DPA requires that a bill of indictment is preferred and criminal proceedings are instituted but are automatically suspended. A company carrying out an internal investigation may be able to argue that criminal proceedings in the form required for a DPA are in reasonable contemplation at the time and therefore an assertion of legal professional privilege may be possible despite this ruling. The judgment did not address this point.
The decision-making process for companies and lawyers has now become more complicated and if Mrs Justice Andrews' decision is confirmed by a superior court this could have a profound effect on the way internal investigations are conducted. In the past two years the SFO has obtained a number of Deferred Prosecution Agreements often based on the outcome of an internal investigation. The ENRC case means that it will be harder to maintain a claim of privilege over the lawyers' work product and therefore companies may be more wary about instigating internal investigations.