Recent reports of the latest developments in the long-running dispute between Kazakh mining giant Eurasian Natural Resources Corporation (ENRC) and the Serious Fraud Office (SFO) signalled that the saga shows no signs of reaching a conclusion soon. But whatever the outcome of this highly publicised tussle, it has served to provide some much-needed clarity on legal professional privilege in the context of criminal investigations.

Background

To recap, in late 2010 an alleged whistle-blower contacted ENRC with allegations of fraud, bribery and corruption in relation to its Kazakh and African operations. As a result, ENRC brought in lawyers and forensic accountants to conduct an internal investigation, and in August 2011 the SFO began looking into the matter.

The SFO’s interest materialised into a formal criminal investigation in April 2013, and during the course of the investigation the SFO requested various documents from ENRC. The documents included lawyers’ notes taken in meetings with current and former ENRC employees, along with presentations and materials created by the forensic accountants during their “books and records” review. ENRC rejected the SFO’s request, asserting legal professional privilege over the documents. The SFO is unable to compel a party under investigation to produce documents which they are entitled to withhold from disclosure on the basis of privilege in the English courts.

Investigating Privilege

There are two primary types of legal professional privilege – legal advice privilege and litigation privilege.

Legal advice privilege attaches to confidential communications which pass between a lawyer and their client for the purpose of giving/receiving legal advice.

To be covered by litigation privilege, the documents must fulfil three criteria when they are created:

1. They are made with litigation in progress or in reasonable contemplation;
2. They are made with the sole/dominant purpose of conducting that litigation; and

• The litigation concerned is adversarial in nature, not investigative or inquisitorial.

In May 2017 the High Court controversially ruled that the documents were not covered by litigation privilege on the basis that neither litigation nor prosecution were in contemplation at the time the documents were created, and that the dominant purpose of the investigation was fact-finding and regulatory compliance, rather than litigation.

In a decision which provides some welcome assurances to companies and legal advisors alike, the findings of the High Court were subsequently overturned by the Court of Appeal (CA) in September 2018. The CA took the view that by its nature, the relationship between ENRC and the SFO was adversarial, and that the parties would both have known that the investigation could lead to prosecution if not resolved. In this instance the SFO had made it specifically clear that criminal prosecution was a possibility, and lawyers had been retained on that basis. In finding that the dominant purpose of the investigation was indeed litigation/prosecution, the CA took a refreshingly pragmatic, commercial approach. It found that investigations frequently serve multiple purposes, but that here litigation stood out above the alternatives.

The CA’s decision serves as a reminder that even though documents may be created for production to the other side of a dispute or investigation, they may still be privileged if they fulfil the criteria above.

Legal Advice Privilege – Three Rivers a step closer to being challenged? 

Although litigation privilege was the focus of the CA ruling, it is also worth noting that this case may signal a change in attitude towards legal advice privilege.

ENRC had put forward an argument that the interview notes should also be covered by legal advice privilege.

At first instance, the High Court found that the interview notes did not attract legal advice privilege due to the fact that they were fact-finding documents from employees who were not part of the ‘client team’ capable of instructing lawyers and receiving legal advice on behalf of the client company. In reaching this conclusion, the High Court followed the Court of Appeal’s decision in the case of Three Rivers (No 5), which is authority for the principle that the ‘client’ is made up only of the individuals within the company who are responsible for obtaining legal advice.

Having found that litigation privilege applied to the interview notes, it was not necessary for the CA to make a ruling on them regarding legal advice privilege. However, in obiter comments the Court appeared to agree in principle with ENRC’s challenge that legal advice privilege should extend to employees (current and past) authorised to provide factual information to legal advisers for the purpose of obtaining legal advice.

The SFO declined to challenge the Court of Appeal’s verdict, so we will have to wait a while longer before the Supreme Court has the chance to reassess the principles of Three Rivers (No 5), but this case suggests that change will follow when it has the opportunity to do so.

Recent Developments – Judicial Review

In August of this year, ENRC applied to the High Court for a judicial review of the SFO’s handling of the ongoing fraud and corruption probe. In the papers filed in the application for judicial review, ENRC claimed that the SFO’s methods were ‘unlawful, unreasonable, disproportionate and unfair’.

The judicial review application comes against the backdrop of multiple claims brought by ENRC in connection with the SFO’s investigation, an inquiry which has been rumbling on for more than six years. So far, no formal charges have been brought against ENRC, with the company denying all allegations.

In March of this year, ENRC had filed a claim worth £70m in the High Court, alleging misfeasance in public office against SFO. The High Court claim stems from allegations that a partner at Dechert – ENRC’s former lawyers – passed highly sensitive confidential information to the SFO. ENRC believe that the SFO induced Dechert to pass on the information and, in doing so, to breach the fiduciary duties which the firm owed to ENRC as its client.

Recent Developments – Examination of Privileged Documents

Last month, the parallel dispute between ENRC and Dechert provided another twist in this long tale, as a Master ordered that Dechert were entitled to physically inspect privileged documents. Though they are not allowed to read their contents, Dechert were permitted to examine the documents held by ENRC for any signs that they had been copied.

Dechert in fact already have copies of these documents in their possession (ENRC say as a result of the intentional leaks), so their contents will be of little concern. What is of interest to Dechert is any differences in formatting and physical appearance, which Dechert will use to attempt to clarify whether or not the documents were leaked.

Conclusions

Unlike the SFO’s investigation in this case, the majority of internal investigations will take place when litigation is not in reasonable contemplation, meaning that the ‘dominant purpose’ test for litigation privilege will not be met. This will often be the case where companies are just starting to investigate an issue, and in circumstances where there may be no known adverse party (for example a cyber-attack or data breach).

Under the current test, litigation privilege will not come to the aid of many companies conducting these types of investigations, forcing them to attempt to rely on legal advice privilege. This seems at odds with the principles of legal professional privilege – the law should not prevent companies from properly investigating when things go wrong. However, so long as Three Rivers (No 5) remains good law, if documents do not attract litigation privilege, there is by no means a guarantee that legal advice privilege will apply. Legal advice privilege would only apply if the investigation is conducted for the purpose of obtaining legal advice, and even then, the relevant controls will need to be put in place, including the establishment of a specific client privilege group. Even when a company conducts an investigation to obtain legal advice, and puts the relevant controls in place, it will be up to the court to decide on the specific facts of the case whether privilege applies to the documents in question.

In the context of the ENRC v SFO dispute, the fact that the SFO declined to challenge the Court of Appeal’s decision in the Supreme Court means that the judgment stops short of fully clarifying the situation, particularly regarding the ‘client’ in relation to legal advice privilege. However, the SFO’s decision should not be taken as a suggestion that it is backing down on claims to legal privilege – it has since affirmed that it “remains prepared to challenge [privilege claims] it considers to be ill-founded”. It should also be borne in mind that the findings of this case were highly fact-specific, and the circumstances of each investigation will need to be judged on their own merits.

The ENRC’s judicial review application may be yet another in a long line of attempts by ENRC to make the SFO’s investigation of its conduct go away, but it could provide further insight into how the conduct of regulators is regulated. The SFO’s decision to suspend its inquiry into its own conduct during the ENRC investigation was apparently made on the basis that the civil proceedings “cover the same ground”. ENRC disputes this position, and it will be up to the High Court to determine the direction of where this saga heads next.

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