The unanswered questions following SFO v ENRC

Legal Privilege has never been more important or more challenging

On 5 September 2018, the Court of Appeal reached its long awaited decision in the case of SFO v ENRC [2018] EWCA Civ 2006 . It reversed what many held to be an erosion of the key principles of litigation privilege following the High Court decision in the same case in May 2017 . 

The case involved the Eurasian Natural Resources Corporation (ENRC) and their internal investigations in response to a whistleblowing incident in December 2010 alleging bribery and corruption in one of ENRC's key subsidiary companies. 

In the first instance, the High Court ruled that ENRC's internal investigation documents into bribery were not protected by legal privilege because they were produced before criminal proceedings were reasonably within contemplation. Even if it was within contemplation, Andrews J held, the documents were not created with the dominant purpose of being used in relation to the proceedings, but with the view to collating evidence to inform a decision to self-report with the aim of avoiding criminal proceedings. 

The Court of Appeal disagreed with Andrews J's assessment, and held that, "it would be wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitors to investigate the circumstances of any alleged offence".

The Court of Appeal's decision was welcomed by criminal and regulatory lawyers and their clients. However, the Serious Fraud Office (SFO) have since confirmed that they will not be appealing the Court of Appeal's judgement. As a result of this, the Supreme Court will not have the opportunity to bring much-needed clarity to the scope of litigation and legal advice privilege and address the questions that the Court of Appeal has left unanswered. So, what are those questions?

Who is the client for the purposes of legal advice privilege?

The Court of Appeal judgement has failed to provide clarity on how the 'client' should be defined for the purpose of legal privilege protection. The question remains as to whether privilege should protect communication between lawyers and the employees/directors authorised to seek and receive legal advice (the narrow definition), or should be interpreted more broadly to cover communication between lawyers and all employees of the client company (as was ENRC's position). 

In Three Rivers (No.5), the court held that communication between lawyers and a company employee would not attract legal advice privilege unless that employee was tasked with seeking and receiving advice on behalf of the client company. However, as the Court of Appeal highlighted, this does not reflect the modern business environment, where legal advice is sought by large national and multinational corporations with significant sized workforces. In these companies, first-hand knowledge central to the investigation is likely to be held by company employees, rather than by the board of directors seeking the legal advice. If lawyers cannot obtain information from these employees (in a way that is protected by privilege) then these larger corporations are disadvantaged vis-à-vis smaller companies whose directors may have day-to-day operational knowledge. The Court of Appeal stated that "in our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach."

However, whilst they were in favour of departing from Three Rivers (No. 5), the Court of Appeal felt they were unable to, and highlighted that this principle would need further consideration by the Supreme Court. In the absence of this, legal professionals should proceed with caution when dealing with company employees who are outside of the core investigation team and not specifically tasked with seeking/receiving legal advice. 

What about lawyers working papers?

The Court of Appeal was also asked to decide on whether lawyers' working papers would only be privileged if their disclosure would betray the tenor of the legal advice sought or received. In the first instance, Andrews J held that a "verbatim note of what the solicitor was told by a prospective witness is not, without more, a privileged document just because the solicitor has interviewed the witness with a view to using the information that the witness provides as a basis for advising his client" (para 97).

During the appeal hearing Mr Thanki QC, counsel for ENRC, submitted that working papers should be covered by legal advice privilege because they were confidential documents, created by a lawyer, for the purpose of giving legal advice. 

As the Court of Appeal held that the interview notes in SFO v ENRC were covered by litigation privilege, they determined that it was not necessary for them to reach a conclusion on legal advice privilege. They deferred this matter to future consideration by the Supreme Court, and as such the status of these working papers, central to any large investigation, remains uncertain.

A word of warning about "reasonably contemplated"

In the High Court judgement, Andrews J said that there was a "critical difference" between civil and criminal proceedings, because criminal proceedings: "cannot be started unless and until the prosecutor is satisfied that there is a sufficient evidential basis for prosecution and the public interest test is also met. Criminal proceedings cannot be reasonably contemplated unless the prospective defendant knows enough about what the investigation is likely to unearth". 

Court of Appeal judges overturned this, and held that whilst further investigations may need to be carried out, this uncertainty does not preclude proceedings being in reasonable contemplation. They did, however, advise caution in respect of this, noting that this does not "lead inevitably to the conclusion that once an SFO criminal investigation in reasonably in contemplation, so too is a criminal prosecution". Each case will turn on its own facts, and the instruction of solicitors may not necessarily be sufficient to demonstrate that legal proceedings are within reasonable contemplation.

In light of this uncertainty, we anticipate that 2019 will be a year in which the parameters of legal privilege are heavily contested. Indeed, whilst the SFO has decided not to appeal the ENRC decision, it has warned that it will "continue to thoroughly assess the merits of all privilege claims and remains prepared to challenge those it considers to be ill founded". Our Regulatory, Compliance and Investigations team are here to advise you and guide you through your investigations, so that you are best placed to secure the benefits and protections of legal privilege.