There has understandably been a lot of interest in the recent decision of the Court of Appeal regarding legal professional privilege in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006.


Addleshaw Goddard published an article shortly after the decision was handed down, which can be found online here. The decision is of general importance to the law of privilege, but in this follow-on article, we consider its impact specifically on internal and regulatory investigations and the lawyers who work on them.

A more justifiable approach to litigation privilege

The Court of Appeal's decision in this case is helpful to investigations lawyers primarily because of the findings that the Court reached about litigation privilege. The approach which the High Court had adopted to determine whether adversarial proceedings were reasonably in contemplation (an essential part of the test for litigation privilege) was found to be wrong.[1] The Court of Appeal was satisfied that, on the facts, a criminal prosecution had reasonably been in prospect.

In our view, the Court of Appeal reached the right decision about that. The approach the High Court had applied to this aspect of litigation privilege in criminal matters was cumbersome. Aspects of it seemed to require a defendant to form a view about a public authority's likely future exercise of prosecutorial discretion (a difficult and an uncertain exercise). From a policy perspective, many would, as we do, argue that it set too high a threshold for litigation privilege to apply in such cases, with the effect that defendants in them received an unjustifiably lower level of protection for their communications than defendants in other types of litigation. It is now clear from the decision in ENRC that, in cases like these, litigation privilege can be available sooner than the High Court had believed, and the artificial distinction between the availability of litigation privilege in civil and criminal proceedings has been abandoned. These are welcome developments for corporate defendants.

The Court of Appeal's decision in ENRC clearly does not mean, however, that litigation privilege will now be available in all cases where a corporate might want to carry on an internal investigation, or where an authority might indicate an interest in a matter. In each case, a corporate wanting to claim litigation privilege will still have to apply the full test for it, and in particular face the hurdles of proving: (i) that adversarial proceedings were reasonably in contemplation, and then (ii) that the dominant purpose of the relevant communication was litigation. These elements are not always easy to call.  Although the Court of Appeal in ENRC moved the threshold on the first of these points in what we would say is the right direction (at least for a corporate potentially facing an SFO prosecution), the exact point at which a claim to litigation privilege will become available in other investigations contexts will still often require a difficult judgement call.

One aspect of what happened in ENRC, which was no doubt helpful to ENRC's arguments about litigation privilege, was that the material facts giving rise to the contemplation of adversarial proceedings (enabling the claim to litigation privilege) came to light fairly early on and were sufficiently strong to enable ENRC's internal and external legal counsel to give advice that there would be an SFO investigation and/or civil or criminal proceedings. The December 2010 whistleblower letter, the early 2011 internal investigation and then the August 2011 contact from the SFO all followed one another in relatively quick succession.

Many investigations lawyers will, however, be familiar with matters that do not develop that way, and whose evolution can be far more nuanced. It is not uncommon for an issue to surface at an organisation that potentially involves misconduct, the nature and extent of which are unclear. Some evidence emerges. The internal legal function has few facts to go on.  An attempt is made to investigate. Turnover of staff means the corporate memory is limited. Legal analysis of the available evidence shows that there might well be an issue, and if there is, the jurisdiction of different authorities and agencies with different powers (some prosecutorial, some regulatory, some merely supervisory) could potentially be engaged. A suspicious activity report under the Proceeds of Crime Act, or another self-report of some kind, might be made. It may be that nothing then happens external to the organisation for a substantial period of time. Whilst any or all of the authorities concerned could get involved, none of them shows any interest. Then one of them takes action.

In this kind of case, it may be hard to argue (as the CA concluded in ENRC) that "the whole sub-text of the relationship" (between the organisation and the authority that ultimately took the action) involved the prospect of prosecution or other adversarial proceedings. The issue of exactly when adversarial proceedings were reasonably in contemplation, and so the point at which the corporate can start to think about claiming litigation privilege, will remain a live and controversial one.  

It is, however, in our view difficult to see why the organisation in this example is in so different a position (following the emergence of the initial evidence) to a corporate which receives a threat of civil proceedings that seems baseless but requires investigation. In both cases, it would often be advisable for the corporate to look into the matters, speak to the employees concerned, get technical help (for example from accountants or other consultants), assess the strength of its position, and start preparing its defence against future action should it materialise. In either case, doing that without the protection of litigation privilege over the relevant communications may inhibit those who need to speak freely, discourage the corporate from obtaining technical help from a third party, and could expose the corporate to unnecessary liability. It is in our view hard to justify why, in principle, litigation privilege ought not to be available to the corporate in both cases.

Legal advice privilege: an opportunity missed

In many ways, however, the critical issue for investigatory lawyers arising from the Court of Appeal's decision in the ENRC case is not so much its decision about litigation privilege (which, on one view, simply dealt with a highly controversial decision of a lower court on particular facts). It is rather the Court of Appeal's reluctance to revisit and reappraise the ageing and unsatisfactory decisions in the Three Rivers litigation insofar as they concern legal advice privilege.

After ENRC, as before it, there will often be cases where (like the example we give above) some limited negative evidence emerges and the only way for a corporate to understand what has happened, and assess whether or not there is a problem (let alone an exposure to some kind of litigation), is to carry out an internal investigation. There are often many sound commercial, corporate governance and risk management reasons why a corporate should consider carrying out an internal investigation in such circumstances. At this point, however, particularly where there has been no contact with authorities external to the organisation (there may have been no legal or regulatory requirement for there to have been such contact), a claim to litigation privilege (even after ENRC) may be difficult to establish. A reasonable claim to litigation privilege might well arise for other good reasons (for example, the prospect of civil litigation arising out of the same facts). However, absent any of those, the corporate's stronger privilege arguments may well be based on legal advice privilege.

In practice, an effective internal investigation generally requires those conducting it to speak to at least some of the people in the organisation who were potentially involved. Legal advice needs to be grounded in facts. A claim to privilege over the interviewing aspect of investigation work, however, runs into the problem (posed by the current test for legal advice privilege) of 'who is the client'. The Court of Appeal recognised in ENRC that this is a difficulty which large corporates face, and was clearly not convinced by aspects of Three Rivers in this context. Indeed, it expressed a desire to depart from them had it been open to the Court to do so.[2]

Beyond those expressions of judicial dissatisfaction, however, ENRC provides little practical help. There are important arguments for and against an entitlement to claim privilege in this context. These could be aired in Parliament. But the only Court that can effectively tackle and resolve them in the UK is the Supreme Court and – from a procedural perspective – that requires there to be a prior dispute over the law.

We await the next case where that might happen. It will no doubt get the same level of focus and scrutiny from the legal profession as the ENRC litigation has done, because this issue is important. Until it arrives, however, the fact a corporate cannot always be sure of a successful claim to legal advice privilege over aspects of key internal investigation work could well create perverse incentives that discourage corporates from carrying out effective internal investigations, or discourage the authorities from early engagement with potential corporate defendants.

The point of allowing a corporate a clear and reasonable claim to privilege over all internal investigation work carried out by its lawyers, or on their behalf to enable them to give legal advice (whether the law calls that litigation privilege, legal advice privilege, or something else) would be to allow its management and legal counsel space to work out whether something genuinely has gone wrong, and assess and manage the risks the corporate faces. The space allows those concerned to work without fear that what they are doing will one day have to be handed over to a claimant totally hostile to their interests in a way that would seem like an unjustified act of commercial self-harm, or that the corporate will be left with no choice about whether to hand it over to a public authority in circumstances where Parliament would appear to have conferred relevant protection. Further, an effective system of self-reporting in practice relies on effective internal investigations – without them, self-reporting may be limited, inaccurate, or may not happen at all. As a matter of policy, the current state of affairs in English law cannot be right.

Key contacts

Nichola Peters

Nichola Peters

Partner, Head of Global Investigations/Inquiries
London

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Michelle de Kluyver

Michelle de Kluyver

Partner, Global Investigations
London, UK

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David Pygott

David Pygott

Partner, Global Investigations
London, UK

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[1] The test for litigation privilege and the High Court's approach were outlined in our previous article.  The High Court's judgment is available at [2017] EWHC 1017 (QB) – see in particular at para 160.  See also paras 90 to 101 of the Court of Appeal judgment.

[2] See in particular paras 127 and 130 of the judgment.