Legal professional privilege is a common-law right that allows parties to be free to get legal advice (advice privilege) and be able to prepare for litigation (litigation privilege) as fully as possible without the risk that any opponent will be able to see the material generated by those preparations.
A recent case involving the primary prosecutor of bribery cases in the United Kingdom, the Serious Fraud Office (SFO), and mining company Eurasian Natural Resources Corporation (ENRC) brought into question the principles behind privilege.
While these principles have been reasonably clear for over a century, it remains rare for the details to be argued before a court in relation to criminal proceedings. It is also uncommon to have privilege argued against by a prosecuting body like the SFO, as there had been an assumption (as made by ENRC in this case) that if privilege was waived it would be for the purposes of negotiating a settlement rather than a prosecution.
The facts behind the case provide a fascinating insight into the way a corporation conducted its investigations into allegations made via a hotline and in the media. In short, ENRC had become aware of allegations about one part of its business and commenced an internal inquiry. A second issue was then raised in the media, so ENRC began another internal investigation, but the media coverage prompted the SFO to write a letter to ENRC suggesting that the company self-report under the SFO’s corporate self-reporting regime and requesting a meeting. ENRC informed the SFO about both of its investigations and indicated that they would work with the SFO to resolve any found issues. ENRC continued to investigate and kept the SFO informed of progress until they had created a draft report. At this time, there were significant changes within ENRC, to both management and outside counsel, which prompted the SFO to start their own investigation. As part of the investigation conducted by the SFO, they made requests for any documents that ENRC held relating to their previous investigations, which then became the subject of the claims for privilege argued in the case.
Two main legal points were decided in the case.
The first legal point is that for documents to be covered under litigation privilege they must have been generated for the dominant purpose of preparing for litigation that is either in progress or reasonably in contemplation. In this case, the court found that:
the initial investigations by ENRC were considered to be for the purpose of fact finding rather than defending litigation, as ENRC did not know at the time that there was any actual evidence of wrongdoing
preparation to avoid defending a prosecution (i.e. by a settlement) is not the same as preparing to defend a prosecution and therefore does not attract litigation privilege, and documents prepared for the purpose of sharing with the prosecutor in the hope of a settlement will not be privileged
the investigation by the SFO did not in itself suggest that a criminal prosecution was reasonably likely and, since ENRC couldn’t show that it knew of any matter that would make prosecution likely, it was never more than one of many possibilities.
The final finding also has the effect of making it harder to claim privilege in a criminal case than a civil one, because the standard that a criminal prosecutor must meet before commencing proceedings (including a public-interest test) is higher than in a civil case, making it harder for a company to prove that a criminal prosecution was contemplated.
The second legal point is that legal advice privilege only applies to communications between the legal advisor and the members of the company that are authorised to request the advice. Specifically, the court held that:
documents prepared by ENRC staff other than the general counsel or members of the board and provided to external lawyers were not privileged, even if the lawyers used those documents when preparing their advice (the same document, however, may be privileged if it is sent from the lawyer to the company as part of the legal advice)
transcripts and notes of interviews drafted by lawyers as part of the investigation (known as work product) were not privileged unless they showed how the lawyer was thinking of providing advice
a lawyer providing advice is not enough – in this case, a senior mergers and acquisitions manager who was a qualified lawyer and subsequently general counsel could not claim privilege over advice that he gave, although it was legal in nature, because he was not acting in a legal role within ENRC.
WHAT IS THE LEGAL IMPACT?
While the case may have a significant impact on how investigations are managed, it doesn’t mean that parties can no longer obtain legal advice prior to an internal investigation. Discussions with a lawyer for the purposes of legal advice continue to be protected. The main change is that preliminary discussions of a fact-finding nature that may then lead to the advice are unlikely to be privileged, as the lawyers will often need to get information from other parties either outside the company (such as specialised investigators or forensic accountants) or inside (individuals who have knowledge of the matter), and those communications don’t meet the criteria to be privileged.
Even when litigation can be said to be in contemplation, in order to claim privilege the documents must be shown to be produced for the dominant purpose of conducting the litigation, rather than avoiding it or with a view to being shown to an adversary (especially relevant when self-reporting to the SFO).
WHAT IS THE PRACTICAL IMPACT?
The first (and least controversial) point is that companies should approach allegations in a number of stages, rather than immediately investigating as if the case will go to court. A ‘triage’ process is necessary in order to understand whether there is any substance to an allegation. While a lightweight investigation might not uncover all the information that a full process would, it may well show the company that a prosecution is likely if there are facts that indicate criminal behaviour. Once the initial findings are made, a more formal investigation under the instruction of legal advisors can be commenced if needed, which could generate documents for the dominant purpose of managing future litigation.
A more significant impact is whether companies will decide to self-report issues to the SFO. Given that possible outcomes of self-reporting are either non-prosecution (based on the facts or public policy) or a deferred prosecution, it will be hard to argue that litigation is reasonably contemplated at the stage of reporting. With the recent Rolls-Royce deferred prosecution agreement providing a 50 percent discount of penalties even when the company had not self-reported (although they were very cooperative once the SFO asked questions), it seems hard to suggest that self-reporting is the most effective strategy.
The complexity that companies face when deciding to self-report in the United Kingdom is that the SFO is not the only party that might start proceedings. Most of the largest cases of bribery include some international context, whether it is with the bribes occurring in another location or with other prosecutors having some jurisdiction over multinational companies. For a company with some presence in the United States, for example, the Department of Justice would expect self-reporting of offences under the Foreign Corrupt Practices Act. As a United States court’s decision making about privilege has not been affected by this judgment, the effect may be that the same document may be considered privileged in the States, but discoverable in the United Kingdom. While most companies would expect to waive any privilege for the Department of Justice, they would not when defending other lawsuits relating to the matter. Derivative civil lawsuits from shareholders for misrepresentation or fraud are now commonly commenced in the United States whenever a public company has settled with a prosecutor. Having documents discoverable in the United Kingdom may complicate the defence of these types of suits.
While the judgment was by a single judge in the High Court, and thus subject to appeal (which is understood to be likely), it does raise some significant questions for companies about how they should approach investigations.
Based on the changes, a sensible approach would be to view internal investigations as compliance matters, focusing on creating transparency and improvement of processes, rather than immediately viewing them as litigation matters. This means internal materials will be drafted as if they will be read externally, while also putting the company into a good position to be awarded discounts or deferred prosecution by a court in the event that the investigation goes further.