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Enforcement Watch

Enforcement WatchIssue 22 | May 2017

Date
08 May 2017

The SFO case against Eurasian Natural Resources Corporation Ltd ("ENRC") has sought to define the boundaries for privilege in the context of corporate internal investigations into possible criminal conduct.


Privilege in Internal Investigations following SFO v ENRC

The SFO case against Eurasian Natural Resources Corporation Ltd ("ENRC") has sought to define the boundaries for privilege in the context of corporate internal investigations into possible criminal conduct. Whilst the background was criminal proceedings, the case also has consequences in the regulatory context and we set out some relevant considerations below.

In brief, concerned about allegations of criminal conduct that had been made, ENRC commenced its own internal investigation into the allegations. The SFO subsequently opened a criminal investigation into ENRC and used its powers to compel the production of documents from it. ENRC argued that certain categories of documents were protected from disclosure as they were privileged. If those categories were truly privileged, they could not be compelled; the case turned on whether the documents in question really were privileged.

Litigation Privilege

ENRC claimed litigation privilege over a number of categories of documents drafted in its own investigation. Importantly, this included lawyers' notes of interviews conducted with employees and others in order to establish the facts.

What is 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 where:

  1. Litigation is in progress or reasonably in contemplation;
  2. The communications are made with the sole or dominant purpose of conducting that anticipated litigation.
  3. The litigation must be adversarial, not investigative or inquisitorial.

ENRC fell at the first hurdle. That is, it could not even establish that it was aware of circumstances which rendered litigation between it and the SFO a real likelihood, rather than a mere possibility. The Court found that criminal proceedings were not even a "distinct possibility", let alone a real prospect, at the time the documents were created. In circumstances where both the evidential and public interest tests of the Code for Crown Prosecutors would need to be met for a prosecution to follow, the Court found that, whilst ENRC reasonably contemplated a criminal investigation, it did not know enough to reasonably contemplate a criminal prosecution (i.e. litigation). The Court did however leave open the possibility that there may be cases in which an expectation of an investigation can be equated with a reasonable contemplation of prosecution, but that will depend on the facts.

Further, it was fatal to ENRC that it had proposed to show to the SFO much of what it had done. Litigation privilege could not, so the Court found, attach to documents intended to be shown to a litigation adversary.

The Court also rejected ENRC’s submission that litigation privilege extended to documents created as part of an internal investigation in order to obtain legal advice as to how best to avoid contemplated litigation.

Legal Advice Privilege

ENRC also argued that the lawyers' notes were covered by legal advice privilege.

Legal advice privilege attaches to all communications made in confidence between solicitors and their clients (or their agents) for the purpose of giving or obtaining legal advice, even at a stage when litigation is not in contemplation.

The Court concluded that there was no evidence that any of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC. The communications between those individuals and the company's lawyers therefore could not attract legal advice privilege.

ENRC also argued that the notes represented lawyers' work product and were therefore a type of legal advice privilege. In answer to this, the Court found that privilege attached to working papers if, and only if, the contents of the document would betray the tenor of the legal advice. A verbatim note of what the solicitor was told by a prospective witness is not a privileged document. In ENRC's case, the Court found that the documents were merely notes of what the lawyers were told by the witnesses and so this claim for privilege also failed as the notes did not contain any advice.

Comment

ENRC has indicated that it intends to seek leave to appeal, and we shall have to see what becomes of any appeal. Certainly, we would welcome a judgment of a superior Court on such an important issue.

In the meantime, litigation privilege in internal investigations in the criminal context will likely be construed narrowly after this judgment. In the criminal arena, corporates may be much less likely to carry out their own internal investigations. (The door is not, however, completely shut to claims for litigation privilege in the criminal context, (please click here for a fuller discussion)).

As for the impact of ENRC in the regulatory context, this is somewhat less clear. However, the situation is at least a little more encouraging for those wishing to claim privilege in certain circumstances.  Some relevant considerations are:

  • In ENRC, the Judge set out the significant hurdles to be overcome in the criminal context before an investigation turns into a prosecution. That was part of the context to her finding that litigation was not in contemplation and that the lawyers' notes cannot have been for the dominant purpose of conducting the litigation.
  • By contrast, the regulatory landscape is somewhat different. The process that the regulators have to go through in deciding whether to start proceedings is different, as are the thresholds, the burden of proof and indeed the regulators' appetite to start proceedings. Assuming regulatory proceedings are considered to be litigation, it may more often be likely that litigation is in reasonable contemplation at the time that an internal investigation is carried out.
  • Further, settlement in a regulatory context is somewhat different to the settlement issues in ENRC. At the time when ENRC began its internal investigation, the SFO's policy on self-reporting was governed by a particular set of guidelines (these 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 instead of prosecution. This practice was a means of avoiding litigation altogether; the avoidance of litigation was one of the reasons for the Judge in ENRC finding that litigation privilege did not attach to the internal investigation notes.  In contrast, the rationale for internal investigations in a regulatory context may more often be in order to be able to settle contemplated FCA or PRA proceedings. In that sense, assuming regulatory proceedings are adversarial, there may be more scope in the right circumstances for litigation privilege to attach to interview notes in a regulatory context.

It will be interesting to see how the FCA and the PRA approach questions of privilege in future in light of the ENRC case. Certainly, the FCA has previously criticised as "gaming" the practice of firms claiming privilege for their lawyers' notes in internal investigations (see Enforcement Watch 18 Internal Investigations: the FCA makes its position clear.

Matters of privilege are very fact specific. Pending any guidance from a superior Court, firms will need to tread very carefully when conducting internal investigations.