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UK Serious Fraud Office Win a Reminder of Limits of Privilege in Internal Investigations

In May the Serious Fraud Office persuaded a High Court judge to order Eurasian Natural Resources Corporation to hand over internal investigation documents it had claimed were privileged. The decision brings back into focus the vexed question of which documents produced in corporate internal investigations can be withheld in subsequent regulatory investigations and prosecutions.

Documents had been created after ENRC had hired solicitors to investigate allegations of corruption and financial misconduct in a subsidiary following a tip-off in late 2010. In August 2011 the SFO told ENRC that a criminal investigation might be commenced. In April 2013 an investigation did begin and the investigators tried to compel ENRC to provide the internal investigation documents, leading to the High Court proceedings.

Four categories of documents were disputed:

  • Solicitors’ notes of evidence given to them by individuals asked about the events in question.

  • Forensic accountants’ work product produced during a review of ENRC’s records to identify systems and controls weaknesses and potential improvements.

  • Slide decks and documents presented to ENRC’s board by the solicitors containing factual evidence found during the investigation.

  • Documents sent by the solicitors to the SFO, over which privilege was now claimed.

Some familiar issues were key to the court rejecting ENRC’s privilege claims in all but the third category.

Reasonable to anticipate litigation?

The first issue was if and when ENRC reasonably anticipated adversarial litigation, such that litigation privilege arose, rather than the narrower legal advice privilege. Litigation privilege can apply to any communication between the lawyer and the client, or between either of them and a third party, so long as the communication is confidential and for the dominant purpose of aiding in the conduct of adversarial proceedings.

This issue has been canvassed numerous times before the courts. The leading case is United States of America v Philip Morris Inc [2003], in which claims of litigation privilege were rejected because the threat of litigation was too generalised and uncertain: the tobacco company anticipated being sued by one or more unidentified claimants at some point, rather than facing a specific claim in the near future.

Similarly, ENRC was found only to have anticipated an SFO investigation when the documents were prepared. ENRC could not have expected with any confidence that the investigation would find enough evidence to prosecute in criminal proceedings. There was no evidence that ENRC knew at the time that the allegations had substance, such that a prosecution could be foreseen as a real prospect. So litigation privilege did not apply to the solicitors’ documents in the first and third categories.

Dominant purpose of the investigation?

In any case, not all of the documents had been prepared for the dominant purpose of proceedings.

This is not new. In Waugh v British Railways Board [1979] an investigation report prepared by the BRB into the causes of a train crash was not privileged because it was prepared for the dual purpose of obtaining legal advice and evaluating the railway’s safety procedures.

In ENRC’s case, the judge thought the forensic accountants’ documents had been created mainly to meet compliance requirements and assess remedial steps. They had little to do with defending prospective litigation. Of course, there is no privilege in accountants’ documents.

Fact finding

Legal advice privilege is limited to confidential communications between lawyer and client where the client is seeking or receiving legal advice. It cannot apply to communications with third parties or broader assistance with a dispute.

This narrow scope often causes issues about whether solicitors’ activities were part of the process of getting necessary information from their client in order to give legal advice, or broader fact-finding.

A common related issue is whether the solicitors were gathering information from the “client”. Courts since Three Rivers District Council v Bank of England [2005] has taken the narrow view that the client is not the corporate entity, but as the individuals within it tasked with getting the legal advice.

These issues mean that if solicitors are interviewing company employees outside this client group, or gathering information beyond that needed to advise on the legal issues in hand, privilege will not apply.

Thus ENRC’s claim for legal advice privilege in the first category of documents was rejected because the individuals interviewed were not part of the “client”. Also, the interview notes were just preparatory work for compiling the narrower subset of information needed for the client to seek legal advice. Just because they had been prepared by solicitors, and were not verbatim, that did not make them privileged.

However, the privilege claim for the third category of documents was upheld, as these were plainly part of the provision of legal advice.

Working papers

Privilege attaches to solicitors’ working papers where they betray the tenor of the legal advice. But the court warned that clients could not assert privilege just by getting lawyers to interview witnesses or produce documents that did not meet this test. The first category of documents gave examples of that.

Privilege in investigations: where are we now?

The ENRC decision does not radically alter the scope of the legal professional privileges. It is more a reminder that courts will continue to want access to potentially important documents, and will keep privilege within narrow bounds to achieve that. They can be expected to continue to take a restrictive view of when litigation privilege starts to apply, what types documents can be privileged, and who falls within the cloak.

© Copyright 2017 Squire Patton Boggs (US) LLP

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About this Author

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Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

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