SFO v Eurasian Natural Resources Corporation [2018] EWCA Civ 2006

The effect of Andrews J’s judgment had been to effectively reduce almost to vanishing point the protection afforded by litigation privilege in circumstances where an organisation undertakes an internal investigation to establish whether or not a criminal offence may have been committed and how best to respond to a potential criminal investigation.

1. Why is this case important?

The Court of Appeal, in overturning the decision of the High Court, ruled that certain categories of documents created during an internal investigation by ENRC into possible criminality were covered by litigation privilege. This case is significant for corporations and other organisations carrying out internal investigations to establish how to respond to a possible criminal investigation. However, the Court of Appeal declined to expressly consider whether Three Rivers District Council v Governor and Company of the Bank of England (No.5) [2003] QB 1556 was wrongly decided, instead leaving that decision to the Supreme Court to resolve in a suitable case.

2. The facts

ENRC was part of a multinational group of companies operating in the mining and natural resources sector. In 2009/2010 it became aware of allegations of criminality on the part of certain African companies that it was seeking to acquire, including by way of an email from an apparent whistle-blower in December 2010. Having brought that email to the attention of ENRC’s board of directors, ENRC’s audit committee engaged DLA Piper to investigate the allegations. In April 2011 ENRC also engaged Forensic Risk Alliance, a firm of forensic accountants, (FRA) to undertake a books and records review. Shortly thereafter the instructions to DLA Piper transferred to Dechert LLP as the partner with conduct of the matter, Mr Gerrard, had moved firms.

Following an article in The Times newspaper making reference to the whistle-blower’s allegations, in August 2011 the Chief Investigator of the SFO wrote to ENRC’s general counsel inviting ENRC to carefully consider the SFOs 21 July 2009 Self-Reporting Guidelines whilst undertaking its investigation. A meeting was invited with the SFO and the letter confirmed that at that stage the SFO was not carrying out a criminal investigation.

Across the course of 2011 and 2012 a number of meetings took place between the SFO and ENRC representatives as ENRC’s investigations progressed. During the currency of these meetings on 9 October 2012 the SFO amended its Self-Reporting Guidelines to require the provision of “all supporting evidence including, but not limited to, emails, banking evidence and witness accounts…as part of the self-reporting process”. On 12 December 2012, Dechert wrote to the SFO making reference to draft reports it had prepared and, in light of the amended guidelines, sought confirmation that the SFO still considered ENRC to be part of the corporate self-reporting process. It also sought confirmation that if settlement is not reached between the SFO and ENRC that ENRC’s report will not be used in any criminal proceedings against ENRC or any related company or individual. This was the first time ENRC or its advisers had expressly said to the SFO that they considered ENRC to be in a self-reporting process or made reference to legal professional privilege.

The SFO wrote back to say that it did not consider ENRC to be in a self-reporting process as it had yet to report any wrongdoing by it. It expressly refused to give any assurances regarding the use to which any report may be put or that it would accept any assertion of privilege over any given category of documents. After an exchange of correspondence, in February 2013, ENRC made a report in respect of its operations in Kazakhstan. In April 2013 the SFO served notice on ENRC that it was commencing a criminal investigation. This led to the assertion of legal professional privilege by ENRC and the application by the SFO to the High Court for declaratory relief in respect of the documents in issue before Andrews J.

Andrews J granted the declaration in respect of three of the four categories of material over which ENRC claimed privilege. She held that material including interviews with employees and third parties and the books and records review by FRA was not subject to litigation privilege, despite it being part of an internal investigation by lawyers when an SFO criminal investigation was in express contemplation. Put shortly, she held that third party documents created in order to obtain legal advice as to how best to avoid contemplated litigation cannot be covered by litigation privilege, even if that entails seeking to settle the dispute before proceedings are issued. Criminal proceedings cannot reasonably be contemplated unless the prospective defendant knows enough about what the investigation is likely to unearth, or has unearthed, to appreciate that it is realistic to expect a prosecutor to be satisfied that it has enough material to stand a good chance of securing a conviction. A distinction can therefore be drawn between civil proceedings and criminal proceedings, because a party may start civil proceedings without first considering whether the evidential and public interest tests for prosecution are satisfied. ENRC’s problem, Andrews J considered, was that it had nothing more tangible than a fear that a problem might emerge once it started to investigate. The claim for legal advice privilege failed as, relying on the principles in Three Rivers District Council v Governor and Company of the Bank of England (No.5) [2003] QB 1556, none of the persons interviewed were authorised to seek and receive legal advice on behalf of ENRC and the communications between them and Dechert were not communications in the course of conveying instructions to Dechert on behalf of the corporate client.

3. The decision

The Court of Appeal overturned Andrews J’s decision on the application of litigation privilege.

The starting point for its consideration of this question was the judgment of the House of Lords in Three Rivers (No.6) [2004] UKHL 48 at paragraph 102:

“Communications between parties or their solicitors and third parties for the purposes of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:

(a) litigation must be in progress or in contemplation;

(b) the communications must have been made for the sole or dominant purpose of conducting that litigation;

(c) the litigation must be adversarial, not investigative or inquisitorial.”

The court considered 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. Whilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty does not in itself prevent proceedings being in reasonable contemplation. The distinction drawn by Andrews J between civil and criminal proceedings was illusory. It is wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitor to investigate the circumstances of any alleged offence. It is wrong that there is a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken. The fact that a formal investigation has not commenced will be one part of the factual matrix, but will not necessarily be determinative. In addition, the fact that solicitors prepare a document with the intention of ultimately showing it to the other party does not deprive the legal preparatory work that they have undertaken of litigation privilege.

The court was also invited to reconsider the position arising from Three Rivers (No.5) in respect of the restrictions of the application of legal advice privilege. The court declined, it not being necessary to do so. The issue would need to be considered by the Supreme Court. However, it did state that, had it been open to it to do so, the court would have been in favour of departing from that decision.

4. Commentary

The effect of Andrews J’s judgment had been to effectively reduce almost to vanishing point the protection afforded by litigation privilege in circumstances where an organisation undertakes an internal investigation to establish whether or not a criminal offence may have been committed and how best to respond to a potential criminal investigation. Prior to the decision of the Court of Appeal, material stemming from internal investigations may well be made available to prosecutors and used against defendants. It will therefore come as a relief that the Court of Appeal has now reasserted the protection of litigation privilege for those conducting internal investigations and left the decision of whether to waive privilege to the potential defendant. However, whilst expressing doubt as to the correctness of the decision in Three Rivers (No.5), the court declined to address it expressly, concluding that that was matter to be left to the Supreme Court. The SFO has recently taken the decision not to appeal the judgment. It may therefore be some time before an opportunity arises for the Supreme Court to reconsider the problems when advising large organisations this case has put back into the spotlight.