“Business as usual?”

Jamas Hodivala examines the Court of Appeal decision in ENRC v SFO [2018] EWCA Civ 2006, which raised important issues of principle as to the proper scope of legal professional privilege, and how the judgment may apply more broadly to corporate investigations.

In ENRC v SFO, the Court of Appeal overturned Andrews J’s decision in the High Court ([2017] EWHC 1017), and held that ENRC had established that probably by April 2011, but certainly by the time it received a letter from the SFO in August 2011 inviting the company to consider its Self-Reporting Guidelines, that it had litigation in its reasonable contemplation. Interviews conducted to establish the facts, amongst other documents, were prepared for the dominant purpose of litigation and were therefore protected by litigation privilege.

Of additional practical significance was an argument that legal advice privilege should also attach to such interviews and that Three Rivers District Council & Ors v Governor and Company of the Bank of England (No 5) [2003] QB 1556 was either wrongly decided or should be interpreted accordingly. On this, the Court of Appeal agreed with Andrews J that only documents and information passing between the “client” and its lawyers were protected by legal advice privilege. The interviews were not protected by legal advice privilege.

In order to understand the impact of the Court of Appeal’s decision on corporate investigations, it is first helpful to briefly examine the facts on which the Court of Appeal relied as justifying its conclusion that litigation privilege had been established by August 2011.

The Facts

ENRC is a company incorporated in the UK that comprises a multinational group of companies. In 2009 ENRC became aware of allegations of criminality relating to its acquisition of Camrose Resources Limited, an African company. In August 2010, a note recorded ENRC’s view that the allegations were “in large part unsubstantiated but bearing in mind the low threshold for suspicion it is not possible to discount them completely.”

On 20 December 2010, an apparent whistle-blower emailed an allegation of corruption and financial wrongdoing within a wholly owned subsidiary based in Kazakhstan. ENRC’s audit committee raised the email with the board, which promptly engaged external solicitors to investigate the allegations.

On 15 March 2011, ENRC’s general counsel emailed a non-executive director warning the Audit Committee not to be “too bullish about regulatory risk… we are firmly on the [SFO’s] radar and I expect an investigation in due course, which is why I have upgraded our dawn raid procedures recently.”

On 8 April 2011, the media reported that the SFO had been written to asking it to investigate the adequacy of ENRC’s anti-bribery procedures in connection with the acquisition of Camrose Resources Ltd.

On 17 April 2011, ENRC’s head of compliance wrote an internal email to colleagues stating (rather presciently): “I predict a sh!tstorm and a [SFO] dawn raid… before summer’s over… the company’s ‘books and records’ will be a [first] port of call.”

ENRC instructed a firm of forensic accountants to review the company’s books and records, which began on 12 May 2011. Witness evidence confirmed that this review was primarily to determine ENRC’s exposure to liability under bribery and corruption legislation but a secondary purpose was to assist with the provision of legal advice on the adequacy of its compliance programme.

On 21 April 2011, the external solicitors wrote a letter to ENRC’s general counsel warning that its internal investigation in relation to the Kazakh subsidiary related to conduct that was potentially criminal in nature and continued: “Adversarial proceedings may occur out of the internal investigation and, in our view, both criminal and civil proceedings can be reasonably said to be in contemplation.”

On 10 August 2011, the SFO wrote to ENRC’s general counsel concerning recent media reports of allegations relating to bribery and corruption, urging ENRC to consider the SFO’s Self-Reporting Guidelines whilst undertaking its internal investigations and invited a meeting with the SFO. It was made clear that the SFO had not commenced an investigation into ENRC at this stage. These Self-Reporting Guidelines are punctuated throughout with references to the “key role” played by a corporate’s professional advisers at the investigation stage.

Whilst events obviously continued after this time, this was the point at which the Court of Appeal held – by the latest – that litigation privilege had been established.

The Court’s Key Findings

The key points of the judgment are as follows:

  • Litigation privilege can attach to documents generated during an internal investigation: [96]
  • It is not correct that, as a general principle, litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken: [100]
  • However, R v Jukes [2018] Lloyd’s Rep FC 157 had been correctly decided on its facts: [100]
  • Legal advice to head off a reasonably contemplated prosecution is as much covered by litigation privilege as advice given to defend those proceedings: [102]
  • A practice of investigating ALL allegations may give rise to a finding that the investigation is for a “dual purpose”, thereby failing the “dominant purpose” test for litigation privilege (see Waugh v British Railway Board [1980] AC 521 relied on by the SFO): [103]
  • However, although a responsible corporate may conduct investigations for compliance and governance purposes the “stick” used to ensure high standards in this respect is the criminal law. “Thus, where there is a clear threat of a criminal investigation, even at one remove from the specific risks posed by the SFO should it start an investigation, the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation”: [108]-[109]
  • The impact of legal advice on the risk of prosecution is relevant to the question of whether the client had litigation in its contemplation (even if the legal advice was objectively cautious): [108]
  • Interview notes compiled during the investigation were prepared to “resist or avoid” a criminal prosecution (and were therefore protected by litigation privilege): [136]
  • Legal advice privilege only attaches to information obtained from the “client” and communicated to an employee that was tasked with seeking and receiving such advice.

At present, this does not include the obtaining of information from employees in order to advise the corporate “client” (see Three Rivers District Council and ors v Governor and Company of the Bank of England (No 5) [2003] QB 1556), although there were powerful reasons why this should be the case in order to eradicate a disparity between the practical protection afforded by legal advice privilege to large and small corporates. Only the Supreme Court could resolve this issue: [123]-[130]

Comment

This is a welcome decision for large corporates wishing to act responsibly and investigate allegations of criminality, without a fear that the product of such investigations will have to be disclosed to the SFO. One of the very real problems faced by corporates in the intervening period between the Administrative Court’s decision and the Court of Appeal’s judgement was how to go about conducting thorough investigations whilst maintaining privilege. This fear took different forms, as it is not simply bribery and corruption that gets investigated internally by a corporate. For example, there is a duty under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013 to report to the Health and Safety Executive certain accidents in the workplace, on the back of which the corporate may find itself investigated by the Health and Safety Executive, prosecuted and facing substantial fines as a result of the relevant Sentencing Guidelines.

Practical problems arose in the effort to balance the thoroughness of the investigation against the maintenance of privilege with one necessarily being sacrificed in favour of the other. A feature of such internal investigations is that expert reports are often required to assist in understanding and advising the client about the cause of the accident and the adequacy of its procedures – partly from a compliance perspective but more often than not to assist the client in understanding whether, if prosecuted as a result of an incident, it was likely to have any defence to criminal proceedings. Such expert reports were not covered by legal advice privilege and, following Andrews J’s decision that there was a distinction between a criminal investigation and a decision to prosecute, were unlikely to have been protected by litigation privilege.

The Court of Appeal’s judgment helpfully removes several difficult hurdles to claiming privilege that had been erected by the lower court’s judgment, before a corporate could establish that it had litigation in its reasonable contemplation. Of interest, however, is the Court’s confirmation that R v Jukes [2018] Lloyd’s Rep FC 157 was correctly decided despite its apparent reliance – and approval – of Andrews J’s decision at paragraph 160-161 in the lower court. Given that Jukes involved a health and safety allegation, is there likely to be a different approach to privilege in such regulatory investigations?

Bribery and corruption allegations do not crop up in a corporate’s daily in-tray but when they do, the company’s Anti-Bribery policy will no doubt require investigation of the allegation at some level, even in order to establish its credibility, in order to amount to an “adequate procedure” for the purpose of s.7 of the Bribery Act 2010. The Court therefore seems to have concluded at [109] that a whistle-blower’s allegation creates a “clear threat of a criminal investigation”. It is consequently the notification to the corporate of a potential criminal investigation that provides a basis upon which the corporate subsequently establishes litigation privilege. But it must be remembered that it is not the event which creates litigation privilege, but the corporate’s evidenced contemplation of litigation as a result of that event.

Accidents in the workplace obviously do not rely on whistle-blower allegations as the fact of the accident is self-evident. It may be thought, based upon [109] of the Court of Appeal’s decision, that litigation privilege would arise thereafter. It appears problematic, therefore, that despite overruling Andrews J, the Court of Appeal nevertheless confirmed R v Jukes.

In reality, any conflict with R v Jukes may be more apparent than real. The issue in Jukes was whether the individual who had provided the statement to the corporate during its investigation into a fatality could rely on litigation privilege to prevent its use at trial. Privilege belonged to the corporate. There was no common-interest or joint privilege in the statement provided by the individual as part of the investigation, and the corporate had waived privilege over the document by first, providing it to the HSE and secondly, by failing to assert privilege over the document once all parties had appreciated it was in the possession of the HSE.

On that basis, R v Jukes is reconcilable with ENRC and the Court of Appeal appears to have consigned Jukes to its own particular facts. There may have been scope in Jukes for argument that legal advice privilege applied if the individual had also had legal representation at the time of providing the statement and wished to obtain legal advice about his own personal liability. If the statement had been obtained using the HSE Inspector’s compulsory powers, it could not have been used as evidence against the individual: see ss.20(2)(j) and 20(7) of the Health and Safety at Work, etc. Act 1974.

Legal Advice Privilege

Information obtained from someone other than the “client” is not protected by legal advice privilege (see [123]-[130] and [133]-[134] of the judgement).

However, a small or medium corporate investigating events may find that such an initial investigation is protected by legal advice privilege, because the relevant information also comes from the “client”. Hence the disparity in the application of legal advice privilege referred to by the Court of Appeal at [123]-[130]. The reason that Andrews J originally held that legal advice privilege did not apply, endorsed by the Court of Appeal, was that the interviews were conducted in order to obtain information from others that was only then be used to advise the corporate client.

In Bilta (UK) Ltd v Royal Bank of Scotland [2017] EWHC 3535 the sole issue was whether documents had been created for the “sole or dominant purpose of litigation”. Sir Geoffrey Vos distinguished Andrews J’s decision in ENRC at first instance and held that litigation privilege applied to interview notes compiled during an investigation. In that case, however, HMRC had previously written to threaten an assessment against the bank but was prepared to wait for the outcome of the RBS investigation. Sir Geoffrey Vos commented in Bilta that HMRC’s letter was “similar… to a letter before claim” setting out the grounds upon which it believed it had grounds to deny RBS nearly £90m by way of input VAT. Commenting on Bilta, the Court of Appeal in ENRC pithily observed: “RBS was not spending large sums on legal fees for the primary purpose of dissuading HMRC from issuing an assessment against it, if that could even properly be regarded as a purpose distinct from the litigation purpose.”

The Court of Appeal was expressly inclined to disagree with the conclusion in Three Rivers (No 5). In this modern age, it is readily understandable why corporates wish to investigate allegations of criminality by the corporate, its officers and agents. First, such investigations encourage a responsible corporate culture and the prevention of future similar events, which makes good commercial sense. Secondly, a thorough investigation to establish the cause of compliance failures also enables the corporate to obtain legal advice on whether it ought to have litigation in its contemplation, such that it can establish litigation privilege. Thirdly, the investigation may result in a “self-report” by the corporate to the prosecutor or regulator in an endeavour to avoid criminal proceedings. The first instance judgement of Andrews J reveals quite how carefully such a “self-reporting” process needs to be handled with appropriate expert advice at each and every stage of the process.

Until the Supreme Court has re-considered Three Rivers (No 5) and the extent to which legal advice privilege applies to investigations, there is a potential period following a large corporate’s awareness of an allegation during which it will have to decide whether to conduct any investigation, should it wish to subsequently seek to rely on legal professional privilege and, if so, how best to achieve that.


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