In a significant decision on privilege, of particular relevance to in-house lawyers, the High Court earlier this week rejected a party's attempt to use privilege as a basis for withholding documents which were created by its legal advisors and forensic accountant.
The judgment in SFO -v- Eurasian Natural Resources Corporation  highlights the need to tread very carefully when seeking to maximise privilege, particularly in the context of internal investigations and criminal/regulatory investigations, and when defining the group of people within a company who should give, receive and have access to legal advice.
This is likely to be of particular interest to in house lawyers, who often play an integral role in (a) identifying whether privilege is available and advising their organisation accordingly; and (b) maximising privilege, for example through optimal drafting and labelling of documents, and ensuring that legal advice is only circulated to the correct internal "client".
Key implications of the decision
• Communications with legally qualified staff may not be privileged if those individuals are not formally employed in a legal role at the time – even if legal advice is given and received.
• Documents created in anticipation of a criminal investigation may not attract litigation privilege.
• However documents created when there is reason to believe that a criminal prosecution is in prospect (eg where it is known that an investigation has unearthed or is likely to unearth prejudicial material) are more likely to satisfy the requirement for litigation to be in reasonable contemplation.
• The courts may take a narrow approach when assessing whether the dominant purpose of an investigation is truly litigation (in which case the associated documents may be privileged) or, for example, whether the investigation is intended to unearth facts for the company's own purposes, or is an attempt to meet regulatory compliance requirements. It is very important to be clear about the dominant purpose of any investigation in contemporaneous documents.
• Lawyers' communications with employees may not attract legal advice privilege if those employees are not specifically authorised to give and/or receive legal advice on behalf of their company. All legal advice should be obtained from the formally appointed in-house counsel or from external advisors.
• Lawyers' notes of conversations with witnesses are not automatically protected by legal advice privilege, which applies only where those notes betray the trend of advice being given to the company.
Background to the proceedings
In April 2013 the Serious Fraud Office began an investigation into the mining giant, ENRC, looking at allegations of fraud, bribery and cross-border corruption. Using its powers under the Criminal Justice Act, it issued a notice demanding that ENRC produced various documents of potential relevance to that investigation.
Included in that notice were documents which had been prepared by ENRC's lawyers and accountants. ENRC resisted the production of four categories of documents on the grounds that they were subject to legal professional privilege.
Category 1 – Notes of evidence: Notes taken by ENRC's lawyers - prior to the SFO's investigation - of the evidence given to them by witnesses about allegations made by a whistleblower. The witnesses included employees and former employees of ENRC and its subsidiaries, as well as third parties such as suppliers.
ENRC argued that these documents were all subject to litigation privilege, alternatively legal advice privilege, on the basis that the dominant purpose of the interviews was to enable ENRC's lawyers to obtain relevant information so that they could give legal advice to ENRC about anticipated criminal litigation. They also said that the documents were a product of their lawyer's work which, if disclosed, could reveal the trend of advice.
Category 2 – Forensic accountant's documents: Materials generated by ENRC's forensic accountants as part of a review they carried out into ENRC's books and records prior to the SFO's investigation.
ENRC claimed that the purpose of this review was to help them to identify issues which might in future give rise to intervention and prosecution by law enforcement agencies. On this basis they argued that the documents were created to enable ENRC to obtain advice and assistance in connection with anticipated criminal litigation, and were therefore subject to litigation privilege.
Category 3 – Lawyer's reports to board: Documents containing evidence given by the partner in the law firm handling the investigation for ENRC to ENRC's board and Corporate Governance Committee.
ENRC claimed that both legal advice and litigation privilege applied to these documents.
Category 4 – Internal emails with qualified lawyer: Documents which an independent lawyer had advised did not attract privilege, including emails between a senior ENRC executive and Mr Ehrensberger, its Head of Mergers and Acquisitions who happened also to be a qualified lawyer.
ENRC argued that these emails recorded requests for, and the giving of, legal advice by a qualified lawyer acting in the role of lawyer, and therefore attracted legal advice privilege.
The SFO rejected these claims and applied to the High Court for a declaration that none of the documents attracted privilege, and therefore must be disclosed.
The tests for privilege
Litigation privilege may be sought in respect of confidential documents which are:
• created when litigation is in progress or reasonably in prospect;
• created with the sole or dominant purpose of the litigation; and
• where that litigation is adversarial, not investigative or inquisitorial in nature.
Legal advice privilege may be sought in respect of confidential documents which:
• pass between the "client" and its lawyers; and
• are created for the purpose of giving or obtaining legal advice.
Save in respect of Category 3 (Lawyer's reports to board) the High Court has granted the SFO's declaration, finding that Categories 1, 2 and 4 were subject to neither legal advice privilege nor litigation privilege.
We examine below the reasons the Court gave when rejecting ENRC's claims to privilege.
Category 1 – Notes of evidence not privileged: The Court found that:
• The threshold for litigation privilege had not been satisfied because "litigation" had not been in reasonable contemplation when the lawyers had interviewed the witnesses. At this stage ENRC had only anticipated a potential criminal investigation, and this did not amount to litigation.
• The Court noted that criminal proceedings cannot be started unless the prosecutor is satisfied that there is a sufficient evidential basis for prosecution. Thus a defendant cannot reasonably contemplate litigation unless it knows enough about what the prosecutor's investigation is likely to unearth, or has unearthed, to appreciate that prosecution is a real possibility.
• The Court was also not satisfied that litigation had been the dominant purpose when the documents were created. At the time the investigation was being carried out, the primary purpose was to find out if there was any truth in the whistleblower's allegations and then to decide what to do about it if there was.
• Legal advice privilege was found not to apply because there the individuals being interviewed were not authorised to seek and receive legal advice for ENRC, and thus their communications with the lawyers were not communications in the course of conveying instructions and legal advice.
Category 2 – Forensic accountant's documents not privileged: These documents were found not to attract litigation privilege because the dominant purpose of their creation was "plainly to meet compliance requirements or to obtain accountancy advice on remedial steps as part and parcel of the comprehensive books and records review".
Category 4 – Internal emails with qualified lawyer not privileged:
• ENRC argued that Mr Ehrensberger was acting in the role of a lawyer and said that "virtually all of Mr Ehrensberger's time as Head of Mergers and Acquisitions was spent acting as a lawyer".
• The judge disagreed. On the basis of statements made in documents such as ENRC's annual reports and accounts, she found that Mr Ehrensberger was engaged not as a lawyer but as a "man of business". Accordingly legal advice privilege did not attach to his communications, even if legal advice was sought and given in those exchanges.
ENRC has indicated that it will appeal.
If you require further information about anything covered in this briefing note, please contact Kate Allass ([email protected]; 020 3375 7220) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Disputes page of our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, May 2017