ENRC Appeal Due Soon – What Are The Implications For Litigation Privilege?

The debate over litigation privilege has taken another twist, with Eurasian Natural Resources Corporation (ENRC) filing a professional negligence claim against international law firm Dechert.

According to the Law Society Gazette, the claim relates to a period towards the end of 2010 and early 2011 when Dechert was advising ENRC over self-reporting allegations to the Serious Fraud Office (SFO). The principal allegation (which Dechert denies) is that firm partner, Neil Gerrard, leaked information to a US-based reporter for the Sunday Times.  This resulted in the SFO launching a formal investigation.  And it is this investigation which has prompted a court battle over professional privilege and a High Court ruling which sent shockwaves through the legal profession in 2017.

 

The decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2017] EWHC 1017 (QB); [2017] 2 Cr. App. R. 24 (QBD)

In Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd,the High Court ordered documents produced in the context of an internal investigation to be disclosed to the SFO.

Disclosure of four categories of documents was considered by the court.  ENRC claimed all the categories were protected under either litigation or legal advice privilege.  The court disagreed, ordering most of the documents to be disclosed.

Fundamental to the decision was the inherent difference between civil and criminal proceedings, the latter only presenting a reasonable contemplation of litigation where there is sufficient evidence to support a prosecution.  The court also acknowledged due to the current climate of self-reporting, internal investigations may be launched in an effort to avoid criminal prosecution, rather than in actual contemplation of a prosecution taking place.

The decision appears to narrow the application of legal professional privilege and adds another dimension to corporate internal investigations and their resulting reputational impact[1].

 

The background to the case

In 2010, ENRC headquarters received an email from a whistleblower alleging that bribery and corruption activities were taking place in its Kazakhstan and some African subsidiaries.

Lawyers were initially instructed to carry out an internal investigation.  The SFO became involved in 2011.  The SFO initially contacted the organisation, alerted it to its self-reporting guidelines, and suggested a meeting.  There was then a period of lengthy dialogue between ENRC and the SFO, in which the company updated the SFO on the progress of its internal investigations.  The regulator told ENRC it was commencing a criminal investigation in April 2013.

Exercising its powers under the Criminal Justice Act 1987 s.2(3), the SFO issued notices compelling the production of documents. ENRC resisted handing over documents that fell into four categories, namely:

  1. Interview notes taken by lawyers from employees, former employees, suppliers, subsidiaries, and third parties.
  2. Accountants’ reports as part of “books and records” reviews they carried out, prior to the commencement of the SFO investigation. Their focus had been on identifying controls and system weaknesses and potential improvements.
  3. Factual updates which included slides, used by lawyers to present to the committee within ENRC or the Board.
  4. Documents referred to in a letter sent to the SFO by external lawyers containing the forensic accountants’ reports and emails between ENRC’s then Head of Mergers & Acquisitions (previously General Counsel) and a senior ENRC executive.

ENRC claimed litigation privilege in all four categories and legal advice privilege in all categories except number two.  It was up to ENRC to prove the documents were subject to privilege and therefore exempt from disclosure.

 

The High Court decision

The High Court held ENRC’s claim for litigation privilege fell at the first hurdle as ENRC failed to show that litigation was “a real likelihood rather than a mere possibility”.  Crucially, Justice Andrews held that “a criminal investigation does not necessarily equate to a reasonable contemplation of prosecution, that step only arising once there is evidence to support the allegations. This is distinguished from civil proceedings, where aside from costs risk, there is no inhibition against the launch of unfounded proceedings[2]”.

In addition, the court held that even if prosecution had been in reasonable contemplation, the documents had not been createdfor the purpose of beingused in court.  Instead, they were collated to understand whether or not there was any truth to the whistle-blower’s allegations.

 

Impact of the decision

The ENRC decision means companies can no longer assume that private documents, including those used in an internal investigation, are subject to litigation privilege.  In addition, it makes clear it is much harder to claim litigation privilege in a criminal case as opposed to a civil one.

In cases that have followed ENRC, the courts have upheld Justice Andrew’s decision.  For example, the Court of Appeal in R (for and on behalf of the Health and Safety Executive) v Paul Jukes [2018] EWCA Crim 176 endorsed the approach taken by Justice Andrews as to when litigation would be in the reasonable contemplation of a defendant in the context of criminal proceedings.  Regarding a signed statement provided by the defendant to his employer’s solicitors following a fatal accident, it was held the document was not protected by litigation privilege because at the time it was prepared the Health & Safety Executive had made no decision to prosecute, and matters were still at the investigatory stage.  In Bilta & Ors v RBS & Anor[2017] EWHC 3535 (Ch), Lord Justice Vos, Chancellor of the High Court, upheld RBS’ claim to litigation privilege over certain documents.  He stated that the question of whether a document was created for the dominant purpose of litigation is a question of fact to be determined by the court, who should take a realistic and commercial view of the facts of each case.

 

Where we are now

Lord Justice Vos moved away from the decision in ENRC in Bilta, and instead followed the Court of Appeal’s decision in Re High-Grade Traders [1984] BCLC 151. However, until this matter is given clarity by the Court of Appealin the ENRC appeal, it would be dangerous for companies accused of wrong doing to assume litigation privilege on documents relating to an internal investigation.

Lineal is a global leader in providing flexible eDisclosure and litigation support. To find out more about eDisclosure and our other services, please call us on +44 (0)20 7940 4799 or email info@linealservices.com.

 

 

[1] Ent. L.R. 2017, 28(7), 244-245

[2] Ibid