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legal alert: Internal Investigations - Re-establishing Legal Professional Privilege

07 Sep 2018


The Court of Appeal has overturned a High Court decision and allowed a company’s claim of privilege over internal investigation documents sought by the Serious Fraud Office. The carefully crafted Judgment has curtailed the effect of other recent decisions which emphasised the difficulties of successfully withholding documents on the basis of legal professional privilege. 
In reversing the decision of the High Court, the case of Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2018] EWCA Civ 2006 has provided some welcome relief to those facing the prospect of investigating potential wrongdoing within their business. Following the decision, companies will have greater comfort that potentially damaging internal investigation documents may be safe from disclosure.
Internal Investigations – Applying Legal Professional Privilege
Whenever allegations of wrongdoing reach those in control of a business, it is commonplace to commence an internal investigation to interrogate those allegations.  This will enable senior management to understand the nature and scale of any wrongdoing, assess the potential risks and liabilities which may arise, and agree on the best route forwards.  
There may however come a time when the wrongdoing in question gives rise to a claim against the company.  In such circumstances the company is likely to come under increasing pressure to hand over its internal investigation documents, which may contain sensitive and damaging material.  
Whether or not the company is able to resist disclosure of those internal documents will, typically, turn on the application of legal professional privilege.
What forms of privilege protection are available?
There are two main forms of legal professional privilege, namely litigation privilege and legal advice privilege.  If either apply, they will protect documents from having to be disclosed in the course of litigation. Taking each in turn:  
·         Litigation privilege applies to confidential communications between (1) parties or their solicitors and (2) third parties for the “dominant purpose” of obtaining information or advice in connection with litigation (either existing litigation or litigation which is reasonably in contemplation); and
·         Legal advice privilege applies to confidential communications between a solicitor and his or her client for the purpose of giving or obtaining legal advice.
Each form of privilege has specific characteristics, each of which must be present before privilege arises. For example, was litigation the dominant purpose behind creating the document? Or could it be said that litigation was in contemplation when the document was created? If the answer to either of these questions is “no”, then any assertion of litigation privilege will likely fail. 
The Trend of Recent Case Law  
In a series of recent cases the Court has repeatedly shown how restrictive the test for privilege can be, and it will readily strike down a party’s attempt to claim privilege where it finds that each and every element of that claim is not made out. This was seen, for example, in the RBS Rights Issue Litigation [2016] EWHC 3161. In that case RBS was compelled to hand over its lawyers’ notes of interviews with various RBS employees when an assertion of legal advice privilege failed before the Court.
The first instance decision in Serious Fraud Office v Eurasian Natural Resources Corp appeared to follow that trend, when Mrs Justice Andrews in the High Court dismissed both a claim for litigation privilege as well as legal advice privilege, and ordered the Defendant (ENRC) to hand over its internal investigation documents to the SFO.
The documents related to ENRC’s internal investigation into alleged corruption within certain overseas subsidiaries. ENRC had attracted the attention of the SFO who, in August 2011, contacted ENRC to invite it to self-report in the interests of avoiding a criminal investigation. Discussions with the SFO continued (during which time ENRC received advice from various law firms) but, by April 2013, the SFO had decided to commence a criminal investigation anyway. It was at that point which ENRC asserted privilege over all of its internal investigation documents. An assertion which initially failed. 
Re-establishing the protection of privilege  
ENRC appealed the decision. The Court of Appeal decided, in a Judgment which came as a relief to both in-house and external lawyers around the country, that ENRC’s assertion of privilege should be upheld. 
The Court of Appeal largely based its decision on the application of litigation privilege and found that:
·         At the point the documents were created, it could be said that criminal proceedings against ENRC were reasonably in contemplation; and
·         Whilst the documents had a dual purpose (in that they were created both for anticipated litigation and also compliance purposes), it was the anticipated criminal proceedings that was the “dominant” purpose. 
In reaching such a decision, it would appear that the Court of Appeal was keen to restore some measure of public confidence in the important protection provided by privilege, which allows parties to take legal advice and to conduct investigations without fear of recrimination. The Judgment notes that it is “obviously in the public interest that companies should be prepared to investigate allegations from whistle blowers or investigative journalists, prior to going to a prosecutor such as the SFO, without losing the benefit of legal professional privilege for the work product and consequences of their investigation.”
In light of such findings, going forwards, companies should have greater comfort that (as long as the essential components of privilege can be established) the Courts may be less willing to strike down parties’ assertions of legal professional privilege.
Where now for Legal Advice Privilege?
The Court of Appeal’s Judgment did not focus on legal advice privilege, since (once litigation privilege had been established) it did not need to. However, the Court was pressed to address the law in this area, which has been hotly debated ever since the significant decision in Three Rivers District Council and Ors v Governor and Company of the Bank of England (No 5) [2003] QB 1556. 
That case held that legal advice privilege could only be claimed over communications between a solicitor and his or her client. The “client” for these purposes are only those employees who have been specifically tasked by the company with seeking and receiving legal advice from the solicitor. There may therefore be many employees within an organisation who do not actually qualify as the “client” for the purposes of establishing legal advice privilege. 
This creates a practical problem for many larger corporates, since it is often necessary for solicitors to speak to a variety of officers and employees (not just those designated to seek legal advice), for example to gather facts and information in order to provide advice. By a similar token, it is typically necessary to share legal advice within an organisation beyond the ambit of those individuals who initially received it. In either scenario, there is a real risk that legal advice privilege will either not arise in the first place, or may be inadvertently waived. 
The Court of Appeal recognised this practical problem created by Three Rivers (No. 5) and specifically noted that “if … it had been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so.” However, they ultimately held that only the Supreme Court could take such a step. 
Whether the SFO decides to lodge an appeal and give the Supreme Court the opportunity to review this important area of the law remains to be seen. If they do, the Court of Appeal’s comments could prove very interesting, as they indicate that the ambit of legal advice privilege may soon be increased and parties afforded even greater protection for sensitive documents



Anthony Rance | Partner

0345 901 0914

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