In the SFO v ENRC  EWCA Civ 2006, the Court of Appeal held that documents created as part of an internal investigation by Eurasian Natural Resources Corporation ("ENRC") concerning allegations of criminality were protected from disclosure by legal professional privilege.
What is litigation privilege?
Litigation privilege protects confidential communications between a client or lawyer (on the one hand) and third parties (on the other), or other documents created by or on behalf of the client or his lawyer, which (i) come into existence once litigation is in contemplation or has commenced and (ii) is for the dominant purpose of use in the litigation.
Facts of the case
An email from a whistle-blower alerted ENRC to alleged corruption within its Kazakhstan-based subsidiary. ENRC engaged lawyers to investigate and instructed forensic accountants to review ENRC’s books and records in April 2011. Having been in frequent contact with ENRC since as early as August 2011, the SFO formally commenced a criminal investigation in April 2013, asking ENRC for a range of documents including:
- evidence provided to its lawyers by employees, subsidiaries, suppliers and other third parties of ENRC;
- documents and reports from the review conducted by the forensic accountants;
- slides and notes regarding the evidence prepared by lawyers to present to ENRC; and
- emails between two senior managers at ENRC.
ENRC asserted that these documents were protected by legal professional privilege.
The key issue so far as litigation privilege was concerned was how can documents ostensibly created for compliance and governance reasons and to resist or avoid the need for litigation fall within the ambit of litigation privilege. ERNC had commenced the investigation of its own volition, and the SFO had not formally commenced a criminal investigation until later.
Decision of the Court of Appeal
The Court of Appeal held that litigation privilege could apply in those circumstances as (1) criminal proceedings were in contemplation at the time the relevant documents were created because there was the possibility of prosecution if the self-reporting process did not result in a civil settlement; and (2) the documents had been brought into existence for the dominant purpose of the litigation - legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is protected by litigation privilege.
Implications for tax investigations
The decision has beneficial implications for taxpayers who are investigating their own tax affairs prior to a disclosure of irregularities or litigation taking place. If historic tax irregularities are suspected, a company or individual and their advisers are under a duty to correct the position and should be able to benefit from the added protection of legal professional privilege as they assess the scale and nature of any errors.
If the taxpayer's strategy is unsuccessful and HMRC commences proceedings, then the ENRC decision could help justify a claim to litigation privilege. ENRC is a reminder that, in formulating a strategy for any tax investigation, the taxpayer and their advisers should regularly evaluate the likelihood of litigation and devise appropriate processes for evidence gathering and recording. If the right approach is taken, ENRC could well protect sensitive documents from disclosure.