Co-authored by Rowan Turrall and Chris Parsons
In a significant ruling, the Court of Appeal in SFO v ENRC took an important step in re-establishing the scope of litigation privilege and, notably, left the door open to a future challenge of the Court’s controversial restriction of legal advice privilege in Three Rivers (No. 5).
The case of the Serious Fraud Office (SFO) v the Eurasian Natural Resources Corporation (ENRC) concerned an application by the SFO for disclosure of materials created by ENRC and its advisers during an internal investigation into allegations of financial wrongdoing.
During the course of the investigation, ENRC instructed both external lawyers and forensic accountants to assist with the investigation and to deal with broader issues of corporate governance.
The SFO soon became aware of the investigation and efforts were made on both sides to reach a settlement via the SFO’s self-reporting procedure. However, after some time the SFO opened a criminal investigation into ENRC, who responded by resisting disclosure of documents created during the internal investigation which the SFO had requested.
When reviewing the application for disclosure the Court divided the documents into four categories:
- Notes taken by the external lawyers documenting evidence given to them by current and former employees of ENRC;
- Materials generated by the external forensic accountants;
- Documents containing the factual evidence presented by the external lawyers to ENRC’s Corporate Governance Committee and/or Board; and
- Communication between a senior ENRC executive and ENRC’s Head of Mergers and Acquisitions (previously ENRC’s General Counsel).
The SFO applied to Court for declarations that such documents were not the subject of either litigation or legal advice privilege and so should be disclosed.
First instance decision
In relation to litigation privilege (which, broadly speaking, applies to advice given in reasonable contemplation of litigation), Andrews J decided that:
- The SFO’s criminal investigation was not equivalent to adversarial prosecution (i.e. litigation);
- Litigation privilege applies only to documents produced in ‘reasonable contemplation’ of litigation, and the burden of proving this is greater in criminal proceedings as prosecutors must also conclude that prosecution is in the ‘public interest’; and
- Litigation privilege only protects documents prepared for the dominant purpose of defending litigation. On the facts, Andrews J decided that, as ENRC was dealing with internal corporate governance issues and their initial intention was to disclose some materials to the SFO, they could not have been prepared for the purpose of defending a claim.
Andrews J also relied on the narrow definition of ‘client’ set out in Three Rivers (No. 5) to exclude legal advice privilege (which, broadly speaking, protects legal advice given by a legal adviser to their client).
On appeal, the Court dismissed the notion that the SFO’s criminal investigation did not amount to litigation, and in doing so rejected the notion that establishing ‘reasonable contemplation’ is more difficult in criminal proceedings.
Whilst stating that “[not] every SFO manifestation of concern would properly be regarded as adversarial litigation”, the Court felt that “the whole sub-text of the relationship between ENRC and the SFO was the possibility… of prosecution”.
Further, the fact that ENRC undertook an internal investigation in order to establish the likelihood of litigation did not prevent ENRC claiming that litigation was within their ‘reasonable contemplation’.
Taking a practical view, the Court acknowledged that “a party anticipating possible prosecution will often need to make further investigations” and should not be discouraged from doing so by the inapplicability of privilege.
The Court of Appeal also clarified that litigation privilege attaches to documents prepared for the purpose of settling or avoiding a claim to the same extent as those prepared for the purpose of defending a claim.
Therefore, on the Court of Appeal’s interpretation of the facts, the category 1, 2 and 4 materials were held to be protected by litigation privilege.
Legal advice privilege and Three Rivers (No. 5)
In Three Rivers (No. 5), the Court of Appeal controversially decided that legal advice privilege does not apply to communication between legal advisers and employees who are not expressly authorised to receive legal advice on behalf of a company (whom the Court viewed as the ‘client’).
Although the Court was not strictly required to consider the application of Three Rivers (No. 5) in ENRC, it did go so far as to say that it would not have affirmed the Three Rivers (No. 5) decision if given the opportunity and suggested that narrow definition of ‘client’ should be challenged before the Supreme Court.
We await to see whether Three Rivers (No. 5) will be subject to challenge either on appeal in these proceedings or in the future.
The Court’s decision in SFO v ENRC is a welcome step in unravelling the interpretation of litigation privilege which informed Andrews’ J first instance decision.
It is also arguable that the Court advanced the scope of litigation privilege in explicitly recognising that a large corporate entity may not immediately ‘know’ whether wrongdoing has been committed, and thereby encouraging investigation into such matters. This may be seen as a departure from the privilege’s 19th century roots and as a modernising step forward.
However, to some extent, the Court of Appeal was able to avoid some legal debate by ‘reinterpreting’ the facts of the case, and still meticulously applied the requirement that litigation must be within a party’s ‘reasonable contemplation’ for litigation privilege to apply.
As such, parties that wish to rely on litigation privilege in particular should take care in continuing to evidence their contemplation of potential litigation into the future.
It is also apparent that the spectre of Three Rivers (No. 5) continues to loom over legal advice privilege, and we would welcome a challenge such as that encouraged by the Court of Appeal in ENRC to further modernise the application of advice privilege to large corporate organisations.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.