Internal Investigations In The UK: Legally Privileged?

by Morrison & Foerster LLP
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The English High Court (the “High Court”) very recently handed down a highly controversial decision in a case between the Serious Fraud Office (SFO) and Eurasian Natural Resources Corporation Ltd (ENRC).[1] The decision could have a profound effect on the extent to which legal professional privilege might apply during internal investigations of potential wrongdoing.  

ENRC, a UK division of a multinational group of mining and natural resource companies operating in the Middle East and Africa, is the subject of an ongoing criminal investigation by the SFO.  The SFO applied for a declaration that certain documents created during an internal investigation by ENRC’s lawyers and forensic accountants into the activities of ENRC were not privileged.  The High Court found that, on the facts, the documents were not privileged.

Background

On 25 April 2013[2] the SFO began a criminal investigation into ENRC concerning allegations of fraud, bribery and corruption relating to the acquisition of substantial mineral assets.  The SFO first contacted ENRC in August 2011, after an extended period of press speculation surrounding ENRC’s conduct. A period of time then followed during which the SFO, among other things, encouraged ENRC to consider self-reporting and cooperating with the investigation. However, those discussions broke down in March 2013, around the time that ENRC terminated its retainer with its then law firm, Dechert.

The High Court’s findings

ENRC contended that the documents were subject to litigation privilege, legal advice privilege, or both, although the primary focus of the argument was on litigation privilege.

Adopting the test from United Sates v Philip Morris,[3] Mrs Justice Andrews stated that, in order to claim litigation privilege, ENRC would have to establish that, at the date of ENRC’s first meeting with the SFO (19 August 2011), ENRC had been “aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility.”

Mrs Justice Andrews said that the question of whether a document or communication is privileged is to be determined by the High Court in light of the evidence taken as a whole.  In most cases in which privilege is claimed, the evidence in support of the claim for privilege will come from the person whose motivation and state of mind is at issue, namely the client or, if the client is a company, those individuals who were responsible for giving the relevant instruction to the lawyers on the company’s behalf.  It is only those people who could explain why they contemplated litigation, or why they were seeking legal advice. 

For various reasons, there was no direct evidence of why ENRC contemplated litigation, or why it sought legal advice, at the time it instructed Dechert to carry out the internal investigation. Mrs Justice Andrews, therefore, drew her conclusions on ENRC’s motivation largely from the contemporaneous documents available to the High Court.

The High Court noted that it was possible that the internal investigation into the allegations would turn up information which (if it ever came to the attention of the SFO) might result in criminal proceedings. However, at the time the ‘privileged’ documents were created, the investigation had not turned up such information and, on the evidence before the High Court, “it remained a matter of pure speculation.”

Mrs Justice Andrews went on to find that “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.”  Mrs Justice Andrews was not prepared to accept that a criminal investigation by the SFO should be treated as adversarial litigation that would fall under the protective umbrella of litigation privilege.  Rather, the “reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of a prosecution” and that it would “depend on the facts.”  On the facts, “none of the [documentation created during the internal investigation] was created for the dominant purpose of deployment in, or obtaining legal advice relating to the conduct of, such anticipated criminal proceedings.

In relation to ENRC’s claim that the documents created during the internal investigation were subject to legal advice privilege, the High Court found (among other things) that the documents formed part of the preparatory work of compiling information for the purpose of enabling ENRC to seek and receive legal advice. Therefore, such documents were not subject to legal advice privilege either.

One to watch

ENRC has indicated that it will seek to appeal the decision but will require permission to do so as it was denied leave to appeal by Mrs Justice Andrews.

Given the potential impact of this case on the conduct of internal investigations in the UK, this is definitely a case to watch and one we will be following closely.


[1]  [2017] EWHC 1017 (QB)

[2] https://www.sfo.gov.uk/cases/enrc/

[3] [2003] EWHC 3028 (Comm)

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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