On 8 May 2017, the Hon. Mrs Justice Andrews granted the declaratory relief sought by the SFO in respect of all but one category of documents that ENRC had claimed were protected from disclosure by legal professional privilege. This judgment by the Hon. Mrs Justice Andrews in SFO v ENRC  EWHC 1017 concerns the SFO’s application for a declaration that certain documents generated during internal investigations by Eurasian Natural Resources Corporation (“ENRC”) are not subject to legal professional privilege.
The SFO’s application was made in the course of its ongoing criminal investigation relating to ENRC’s activities in Kazakhstan and Africa. The SFO’s investigation, which has been running since April 2013, is focused on allegations of fraud, bribery and corruption around the acquisition of substantial mineral assets.
What categories of documents were the SFO seeking?
The documents sought by the SFO were created in the three years prior to its investigation, between October 2010 and March 2013. The documents were categorised by the court as follows:
- Category 1 comprised 184 sets of interview notes prepared by ENRC’s former external lawyers in period 10 August 2011 to 25 March 2013. These notes came from meetings with employees and former employees or officers of ENRC and subsidiary companies, their suppliers and other third parties with whom they had dealings.
- Category 2 comprised materials generated by Forensic Risk Alliance, forensics accounts who carried out a "books and records" review in various jurisdictions with a focus on identifying controls and systems weaknesses and potential improvements. This review started on 12 May 2011 and continued until at least 11 January 2013.
- Category 3 comprised documents indicating or containing the factual evidence presented by the partner at ENRC external lawyers who had conduct of the matter to ENRC's nomination and corporate governance committee and/or the ENRC board on 14 and 15 March 2013.
- Category 4 comprised 17 documents referenced in a letter by a different firm formerly advising ENRC to the SFO.
ENRC asserted that either legal advice privilege, and/or litigation privilege applied to each category of documents.
The supporting evidence submitted by ENRC was impaired by the fact that it was not given by the ENRC employees or solicitors contemporaneously involved in the various internal investigations.
ENRC’s claims to litigation privilege were based on the company’s anticipation that it would become subject to a criminal investigation by the SFO. A redacted letter dated 21 April 2011 disclosed in the proceedings showed ENRC’s lawyers stating that legal proceedings were “reasonably in contemplation”, albeit noting that this view (and, therefore, the application of litigation privilege) may be challenged by third parties. (para 117 of the judgment).
In the court’s view, however, ENRC concern was of regulatory scrutiny and that “objectively, criminal proceedings were not even a “distinct possibility”, let alone a real prospect – at most, they were one of a range of hypothetical outcomes from a hypothetical future SFO criminal investigation.” (para 118). The court accepted that ENRC “may have feared” that the SFO would bring a prosecution against it but that a “fear of a “worst case scenario” is not good enough”. (para 122)
The court also rejected ENRC’s submission that litigation privilege extends to third party documents created when seeking legal advice on how best to avoid contemplated litigation. In doing so, the judge drew a line between evidence prepared to enable you to conduct a defence, and evidence that you seek in anticipation and in an attempt to persuade an adversary not to commence proceedings against you (para 61). In any event, the court concluded that the claim to litigation privilege would not satisfy the “dominant purpose” test given that the primary purpose was to investigate a whistleblower’s allegations, and not to prepare for litigation.
Furthermore, the court observed that ENRC’s intention at the time most of the documents were created was to show them to the SFO, at a time when the relationship was collaborative rather than adversarial. The court noted that “documents created with the specific purpose or intention of showing them to the potential adversary in litigation are not subject to litigation privilege. It does not matter whether the reason why they are going to be shown to the adversary is to persuade him to settle, or not to bring proceedings in the first place.” (para 170).
Legal advice privilege
The judge observed that legal advice privilege is a fundamental human right and a principle central to the administration of justice. Its scope must be determine by the court in light of the evidence taken as a whole (para 37-39). Interestingly, the judge noted that whilst an affidavit of documents will generally be treated as conclusive on the question of privilege, she was clear that evidence from the lawyers involved will be of secondary value to a claim of legal advice or litigation privilege.
Ultimately, the court was constrained by the controversial precedent set by the Court of Appeal in Three Rivers (No 5). In applying the narrow definition of “the client” set in that case, the court held that ENRC’s claim to legal advice privilege failed for all but a few of the documents in question, namely five of the Category 3 documents (external lawyer’s presentation to ENRC Board and/or Committee)
This conclusion is consistent with another High Court privilege judgment from earlier this year, in the RBS Rights Issue Litigation. However, unlike in that case, the judge here expressed little reticence in applying the Three Rivers (No 5) test, stating that an extension of the privilege to all employees would put a corporate client in a more protected, legally advantageous, position than an individual.
The judge stated that "the need for the client to be able to communicate freely and frankly with his lawyer does not justify extending the protection afforded by legal advice privilege to cover communications" between a lawyer and person other than the “directly instructing body” for the purposes of obtaining information from them to enable him to give legal advice to the client (para 86/7).What this means, in the context of a corporation, is that depending on how a corporate structures its teams to seek legal advice, and who the corporate strictly considers as “agents”, certain individuals will be protected by privilege when speaking freely and frankly to the corporate’s lawyer and others will not. Additionally, in respect of lawyers’ working papers, the court made clear that “a claim for privilege over lawyers’ working papers will only success if the documents would betray the trend of legal advice” (para 178). The judge again criticised ENRC’s evidence on this point but it is difficult to see how clear evidence can be given without undermining the very privilege you are trying to protect.
Despite reaching this conclusion without significant reservation, the court did acknowledge that this is a controversial area of law, and stated that “if there is to be any change of approach to bring the law in this jurisdiction into line with the more liberal approach adopted in other jurisdictions, it will have to be made by the Supreme Court or by Parliament” (para 95). Indeed, ENRC has already stated publically its intention to appeal the judgment.
Novel propositions on privilege
The court’s decisions on the facts, in relation to both legal advice privilege and litigation privilege, are consistent with established (if controversial) case law. However, the judgment also includes some less orthodox propositions in relation to the scope of the privileges.
One such proposition was a distinction made between civil litigation and criminal litigation. It is well settled that litigation privilege only arises once litigation is “in reasonable contemplation”. The court observed that this threshold may be crossed in relation to anticipated civil proceedings even if there is no evidence or properly arguable cause of action but did not accept that anticipation of an imminent SFO investigation was enough to make out a claim for litigation privilege. In respect of criminal proceedings, a prosecutor seeking to commence a criminal action needs to meet higher standards of evidence in order to simply commence proceedings, as well as satisfying itself that the proceedings would be in the public interest test. The court therefore concluded that in relation to anticipated criminal proceedings or prosecution, the “reasonable contemplation” or “real prospect” threshold cannot be crossed unless the putative defendant is aware of enough incriminating evidence to anticipate that there is some truth in, or material to support, the allegations and/or there is a good chance of successful conviction (para 155/160). There is logic in this proposition, but it does lead to an uncomfortable conclusion: a putative defendant asserting litigation privilege in a criminal context would effectively be prejudicing his own position by implicitly declaring the existence of substantial incriminating evidence.
Another aspect of the judgment that has attracted attention is the boundary between legal advice privilege and litigation privilege. The judge takes the position that the two privileges are mutually exclusive, rather than overlapping; and moreover, that the only privilege applicable to solicitor-client communications is legal advice privilege, even in a litigation context. In this approach, litigation privilege is confined only to communications with a third party (made with the sole or dominant purpose of conducting the litigation). The court may be correct in this analysis, but it certainly runs contrary to the orthodoxy. The judge referenced the rationale behind litigation privilege as described by Lord Rodger in Three Rivers (No 6) acknowledging that parties should be free to prepare their case as fully as possible without the risk that his opponent will be able to recover the material generated by his preparations (para 52). By taking the narrow approach to “reasonable contemplation”, distinguishing between civil and criminal proceedings, and attempting to draw a clear line between solicitor-client and third party communications, it would seem that this judgment limits that freedom.
Practical Implications of this Judgment
Even though the scope of privilege outlined in this judgment is consistent with existing case law, the court’s particular approach towards privilege does have practical consequences that are worth noting, particularly for corporates undertaking internal investigations and engaging lawyers to give advice across different parts of their companies or groups. In particular:
- Record keeping – the best evidence of what was contemplated or foreseen at the time will always be contemporaneous documents and this was a key point criticism made by the judge against ENRC. Consider record keeping of decisions to instruct lawyers or third-party advisors.
- In-house lawyers – are you acting as a lawyer or a “man of business”? The judge held that no privilege can attach to communications with the latter even if legal advice was being sought and/or given.
- External lawyers – carefully consider how you instruct external advisers and your external advisers’ role. ENRC apparently had different law firms advising on different aspects of their business and the whistleblower’s claims and perhaps the court’s analysis may have been different had only one firm been instructed to advise.
The Law Society’s President, Robert Bourns, has called this judgment “deeply alarming” – it is, at the very least, controversial. The scope of privilege is a hotly contested area at present, particularly in relation to internal investigations. If the Court of Appeal is inclined to grant ENRC permission to appeal, then this case could provide an important opportunity for the courts to revisit the fundamental boundaries of legal advice privilege.