UK Court of Appeal Extends Privilege in Internal Investigations

Brief Comments on The Director of the Serious Fraud Office v. Eurasian Natural Resources Corporation Limited [2018] EWCA Civ 2006

On Sept. 5, 2018, the Court of Appeal of England and Wales handed down a unanimous decision concerning the application of legal privilege during the course of internal investigations. Overturning an earlier High Court decision,^[1] the Court of Appeal held that legal privilege applied to certain documents prepared by counsel in reasonable anticipation of criminal prosecution. Though the decision is based on British law, it offers broader lessons about legal privilege and the need to be aware of the differing levels of protection afforded across jurisdictions, especially in multijurisdictional anticorruption investigations.

1. Background

Eurasian Natural Resources Corporation (ENRC) is a multinational mining and natural resources company incorporated under the laws of England and Wales.

In 2010, ENRC instructed its lawyers to conduct internal investigations following a whistleblower’s allegations of corruption and bribery within a subsidiary. The following year, the Serious Fraud Office (SFO) notified the company by letter that while it was not under formal criminal investigation, it should consider implementing the self-reporting guidelines that were then in effect. ENRC heeded the letter, periodically updating the SFO on the progress of its investigation. ENRC continued to conduct interviews with current and former employees and also hired a firm to undertake a forensic review of its books and records.

However, in 2013, the SFO launched a formal criminal investigation into ENRC and compelled the company to produce certain documents created during the internal investigations pursuant to Section 2 of the Criminal Justice Act 1987. ENRC refused to disclose several documents, arguing that they were subject to Legal Advice Privilege, Litigation Privilege, or both. The Director of the SFO then sought a declaratory relief from the High Court challenging these claims.

The disputed documents were divided into four Categories:

• Category 1: notes taken by the company’s external counsel based on interviews with former and current employees
  
  
• Category 2: materials generated by forensic accountants as part of “books and records” reviews carried out in different countries and with a focus on identifying controls and systems weaknesses and potential improvements
  
  
• Category 3: documents containing factual evidence created by the company’s external counsel and presented to the company’s Nomination and Corporate Governance Committee and/or its Board
  
  
• Category 4: documents sent to the SFO by lawyers of the company, including:
  • forensic accountants’ reports
  • emails or letters enclosing copies of the forensic accountants’ books and records reports, or otherwise relating to their books and records work
  • emails between a senior executive and a qualified lawyer employed by the company as head of mergers and acquisitions at that time, having previously served as General Counsel
    

— Litigation Privilege

In the lower court proceeding, the High Court rejected the claim that Litigation Privilege applied to any of the disputed documents. According to the High Court, interpreting UK law, Litigation Privilege covers communications between clients or their lawyers and third parties when the following criteria are met: (i) litigation must be in progress or reasonably in contemplation, which is adversarial rather than investigative or inquisitorial, and (ii) the communications must be made with the sole or dominant purpose of conducting such anticipated litigation. The High Court denied application of Litigation Privilege, holding that the company did not reasonably anticipate a criminal prosecution at the time that it had prepared the disputed documents, and the investigation by the SFO was not adversarial in nature. The High Court added that the documents were not created with the dominant purpose of defending against criminal prosecution, but rather to settle or avoid it altogether.

— Legal Advice Privilege

The High Court also adopted a narrow view of Legal Advice Privilege, which applies to confidential communications between clients and their lawyers, acting in their professional capacity, for the purpose of giving or obtaining legal advice. The High Court denied such privilege to Category 1 documents because the interviewees were not expressly authorized to obtain advice from the lawyers on the company’s behalf, and therefore they fell outside of the narrow definition of “client” established by the Three Rivers (No. 5) decision.^[2] Moreover, because Category 1 documents reflected only what the interviewees said rather than what the lawyers thought, their contents did not constitute legal advice. The High Court also denied Legal Advice Privilege to Category 4 documents on the ground that the head of mergers and acquisitions was not qualified to provide legal advice on the company’s behalf due to his role in the organization. Even if he was a qualified lawyer, he served as a “man of business” at the time that he wrote the emails in question. In contrast, the High Court held that Category 3 documents conformed to more traditional notions of Legal Advice Privilege, as they were prepared by lawyers “for the specific purpose of giving legal advice to ENRC.” ENRC did not assert that such privilege applied to Category 2 documents, which were generated by forensic accountants rather than lawyers.

2. Court of Appeal Decision

— Litigation Privilege

The Court of Appeal held that Category 1, 2 and 4 documents were, contrary to the first instance decision, covered by Litigation Privilege and thus did not need to be disclosed to the SFO for two reasons:

First, the Court of Appeal found that criminal prosecution of ENRC was reasonably in contemplation at the time that the company prepared the disputed documents. 

The Court of Appeal pointed to several facts from the record to support its conclusion, including ENRC’s concern that it was “firmly on the SFO’s radar,” and that a “dawn raid” would soon occur. The Court of Appeal noted that “the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement,” as demonstrated by the letter.

However, the Court of Appeal cautioned that not every “manifestation of concern” from the SFO would satisfy this requirement for asserting Litigation Privilege. Generally, criminal prosecution is in reasonable contemplation when the SFO specifically refers to the prospect and mentions that it has engaged legal advisers to deal with that situation. 

Second, the disputed documents were brought into existence for the dominant purpose of resisting contemplated criminal proceedings.

Taking a “realistic, indeed commercial, view of the facts,” the Court of Appeal rejected the High Court’s distinction between documents prepared for the dominant purpose of settling or avoiding claims, on the one hand, and defending against them on the other. Litigation Privilege applies equally to both. The Court of Appeal held that (i) the company’s decision to investigate whistleblower allegations in order to prevent possible litigation satisfied the test for dominant purpose, even if in the beginning it was designed to enhance governance and compliance procedures, and (ii) the company did not intend or agree to share with the SFO the core material it obtained from interviews and investigations and therefore did not waive the privilege thereof.

— Legal Advice Privilege

Having decided the case on the grounds of Litigation Privilege, the Court of Appeal declined to determine whether Legal Advice Privilege applied as well, and explored the issue only academically. The Court of Appeal recognized that it was bound by the narrow definition of “client” under the Three Rivers (No. 5) decision until the UK Supreme Court changed the law. In Three Rivers (No. 5), the Court had found that communications between a company’s lawyer and employee fell outside of the scope of Legal Advice Privilege, unless such employee was authorized to seek and obtain advice on behalf of the company. Nevertheless, in the ENRC appeal, the Court of Appeal stressed that if “it had been open to us to depart from Three Rivers (No. 5),^[3] we would have been in favour of doing so … .” It noted that, especially in the modernized economy, large, multinational corporations need to be able to safely seek Legal Advice Privilege even if the underlying information is dispersed among its employees.

3. Key Takeaways

Though the SFO could decide to appeal, the ENRC decision has positive implications for businesses within the jurisdiction. It increases the probability of successfully asserting Litigation Privilege by adopting broader interpretations of the reasonable contemplation and dominant purpose tests. In issuing the decision, the Court of Appeal recognized a practical interest in encouraging companies to investigate whistleblower claims. The decision reduces businesses’ fears that external counsels would be compelled to disclose interview notes and other documents prepared in the course of internal investigations.

Nevertheless, businesses cannot presume that all internal investigations fall within the scope of Litigation Privilege. The Court of Appeal made clear that it is a fact-specific inquiry, decided on a case-by-case basis.

As for Legal Advice Privilege, Three Rivers (No. 5) remains the law in the United Kingdom for now.^[4] However, the Court of Appeal expressed its dissatisfaction with the narrow definition of “client” that limits the scope of privilege. In light of the growing complexity, size and geographic span of companies today, the UK Supreme Court may be presented again, in this or another case, whether this notion of “client” should cover a greater number of people.

The ENRC decision is of major significance for multinational companies subject to multijurisdictional investigations. Courts in different jurisdictions may take distinct approaches to privilege, illustrating the need to understand the rules that apply in each relevant jurisdiction. In some ways, the decision moves closer to the legal protections afforded by the U.S., where Courts have long considered materials prepared “in anticipation of litigation” to be privileged under either the work-product doctrine^[5] or attorney-client privilege. However, some differences persist. For example, New York courts do not impose the more stringent requirement that documents be prepared for the “dominant or sole purpose” of anticipated litigation with respect to the work-product doctrine. The U.S. Court of Appeals for the Second Circuit (which covers New York, Connecticut and Vermont) held instead that documents “created because of anticipated litigation, and [which] would not have been prepared in substantially similar form but for the prospect of that litigation” were privileged.^[6] This so-called “because-of test,” which several other U.S. courts of appeals have adopted, does not simply deny protection to documents if they were created, in large part, for business reasons. The test protects a wider range of documents that serve dual purposes, while excluding documents “prepared in the ordinary course of business.”^[7] Yet, even within the U.S., other circuits, including the Fifth Circuit (covering Texas, Mississippi and Louisiana), align closer with the UK in adopting the “primarily to assist in litigation” standard.^[8]

The two jurisdictions contrast even more sharply with respect to the concept of “client,” which is generally viewed more broadly in the U.S. than in the UK. The U.S. focuses more on the purpose of an individual’s communications with legal counsel, rather than drawing stark distinctions based on levels of authority.^[9] The U.S. Supreme Court rejected the notion that an employee must occupy a decision-making role in the company, or have been expressly authorized to seek and obtain legal advice on the company’s behalf, in order to be considered a “client.” Instead, privilege attaches to the individual’s communications if they meet the “subject matter test,”^[10] which gauges the individual’s motive and thereby produces a broader scope of protection. Additionally, the U.S.’s work-product doctrine covers even those materials produced by third parties, as long as there is a sufficient connection to one’s legal representation.

In France, attorneys acting as internal investigators must in principle abide by the secret professionnel, although communications between them and third parties would not be covered thereby.

The decision underlines the necessity for legislators from common law and civil law countries to harmonize their approach to privilege, but until then, businesses must exercise caution in understanding the differing rules that may apply.

^[1] Serious Fraud Office v. Eurasian Natural Resources Corporation Limited [2017] EWHC 1017 (QB).

^[2] Three Rivers District Council v. Governor and Company of the Bank of England (No. 5), [2003] QB 1556.

^[3] Id.

^[4] See, e.g. RBS Rights Issue Litigation [2016] EWCA Civ 474.

^[5] Fed. R. Civ. P. 26(b)(3) See, e.g., Hickman v. Taylor, 329 U.S. 495, 510-11, 67 S.Ct. 385, 393-94, 91 L.Ed. 451 (1947), NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 154, 95 S.Ct. 1504, 1518, 44 L.Ed.2d 29 (1975),

^[6] United States v. Adlman, 134 F.3d 1194 (2d Cir. 1998).

^[7] Id.

^[8] United States v. El Paso Co., 682 F.2d 530, 543 (5th Cir. 1982).

^[9] In fact, the U.S. Supreme Court rejected an analogous “control group” test, which it believed “frustrate[d] the very purpose of the privilege by discouraging the communication of relevant information by employees of the client to attorneys seeking to render legal advice to the client corporation.” Upjohn Co. v. United States, 449 U.S. 383 (1981).

^[10] Under the subject matter test, the attorney-client privilege may apply to confidential communications made by corporate employees when (i) communications are made for the purpose of securing legal advice, (ii) communications are directed by the corporate supervisor, (iii) the request for communications is made to secure legal advice, and (iv) the subject matter falls within the scope of the employee’s corporate duties. See id.