The English Court of Appeal’s decision in Serious Fraud Office v. Eurasian Natural Resources Corporation Ltd. has once again redefined the borders of attorney-client privilege under English law. The Court has widened the protective scope of litigation privilege, recognising the importance and practicality of legal professional privilege when companies wish to internally investigate alleged wrongdoings. Although assessing whether documents are legally privileged remains fact-specific, this ruling indicates factors that help companies in demonstrating a reasonable contemplation of adversarial litigation in England and Wales. Companies and counsel should keep in mind the importance of documenting the purpose and scope of an internal investigation, and the justification for documents being covered by litigation privilege.
Legal professional privilege
Under English law, legal professional privilege distinguishes between litigation privilege and legal advice privilege. The latter does not protect communications with third parties, such as employees or external advisors. It only protects communications between a lawyer and a client for the purposes of giving or receiving legal advice. Litigation privilege protects communication among a broader group, but only when adversarial litigation is in progress or reasonably in contemplation, and when the communications are made with the sole or dominant purpose of conducting that litigation. A recent example of a successful defence of the applicability of litigation privilege is found in a judgment concerning the Royal Bank of Scotland, released on 1 February 2018. (see also In context February 2018).
ENRC: at first instance
In April 2013, the Serious Fraud Office (SFO) began a criminal investigation into ENRC’s alleged malpractices. It sought disclosure of various documents that were generated by lawyers and accountants during the course of an internal investigation. ENRC refused to comply, on the grounds that these documents were protected by legal professional privilege. Consequently, the SFO sought a declaration from the English High Court that they were not. In its judgment of 8 May 2017, the Court held that almost all documents submitted by ENRC were not covered by legal professional privilege. This was because the documents had been created too early for criminal proceedings to be reasonably contemplated. More importantly, the Court held that the reasonable contemplation of adversarial litigation was not necessarily equal to reasonable contemplation of prosecution. Also, the Court ruled that the documents had not been generated with the sole or dominant purpose of being used in litigation (see in more detail In context June 2017). This decision caused great concern among legal professionals, who feared that the application of legal professional privilege in internal investigations had become severely limited.
On appeal: Widening the protective scope of litigation privilege
The Court of Appeal overturned this controversial High Court decision in a ruling handed down on 5 September 2018. It concluded that the High Court had erred both in law and in its interpretation of the facts. According to the Court of Appeal, litigation had been reasonably in contemplation from the outset of the internal investigation. Moreover, after ENRC was contacted by the SFO regarding the allegations, criminal prosecution was certainly in contemplation. The Court noted that this is always a question of fact: it would not be reasonable to conclude that every manifestation of concern by the SFO should be regarded as adversarial litigation. However, when the SFO specifically conveys to a company that criminal prosecution is a possibility, and legal advisors are engaged, this demonstrates the existence of clear grounds for contending that criminal prosecution was reasonably in contemplation. Furthermore, the High Court was incorrect to hold that existing uncertainty with regard to the possibility of criminal proceedings prevented proceedings being in reasonable contemplation. Therefore, litigation privilege is able to attach itself to documents before a “prospective defendant knows enough about what the investigation is likely to unearth, or has unearthed.”
Regarding the question of whether ENRC’s communications were brought into existence for the sole or dominant purpose of being used in adversarial litigation, the Court of Appeal held that “in both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings.” Importantly, this reveals that litigation privilege will be applied equally in both civil and criminal proceedings. The Court of Appeal further held that “where there is a clear threat of a criminal 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.” Based on the facts in this case, it was found that the communications in question were indeed brought into existence for the dominant purpose of resisting or avoiding such proceedings – and litigation privilege therefore applied.
Regarding legal advice privilege, the Court of Appeal found that the question of who constitutes the “client” for purposes of legal advice privilege should be reserved for consideration by the Supreme Court in the future. The Court did express its non-binding view on this issue, stating that it would have departed from standing case law (Three Rivers 5) if it had the choice.
• The Court of Appeal recognised the importance and practicality of litigation privilege in internal investigations.
• The court clarified the potential scope of litigation privilege, and dismissed the distinction between civil and criminal proceedings when considering whether adversarial litigation is reasonably in contemplation.
• The protective scope of litigation privilege extends to documents relating to internal investigations. However, in order to rely on the protection of litigation privilege, a company must show that the dominant purpose of the documents is related to already-existing adversarial litigation, or adversarial litigation reasonably in contemplation. To that end, English courts will assess those claims by considering the nature, quality, and contents of the evidence that supports them.
• This ruling outlines the factors that help companies demonstrate reasonable contemplation of adversarial litigation in relation to litigation privilege. ENRC provided such evidence, such as SFO statements directed at the company and whistle-blower communications.
• Finally, this ruling emphasises the importance of documenting the purpose and scope of an internal investigation, as well as documenting the justification for documents being protected by legal professional privilege.
• The SFO announced on 2 October 2018 that it will not appeal the decision.
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