High Court decision takes restrictive approach to both litigation privilege and legal advice privilege

A High Court decision earlier this week has applied a strict approach to litigation privilege in the context of criminal proceedings, finding that litigation was not in reasonable contemplation (so the first limb of the test for litigation privilege was not met) even though a criminal investigation by the SFO was reasonably contemplated: SFO v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB). 

The decision suggests it is likely to be easier to establish that litigation is in reasonable contemplation in the context of civil proceedings than criminal proceedings. However, the decision contains unhelpful comments regarding the second limb of the test for litigation privilege – whether a document has been prepared for the dominant purpose of litigation – which would appear to apply equally to civil proceedings. The decision also endorses a restrictive view of who is the "client" for legal advice privilege, as recently applied by the High Court in the RBS Rights Issue Litigation (see our blog post on that decision here):

Key points of interest arising from the present decision include:

  • The court found that the test of whether litigation is in reasonable contemplation is not met just because a criminal investigation is contemplated. Only a prosecution, not an investigation, amounts to "litigation" for these purposes, and the contemplation of a criminal investigation does not necessarily equate to the contemplation of a prosecution. Prosecution only becomes a real prospect once it is discovered there is some truth in the allegations, or at least some material to support them.
  • The court commented that the situation is different for civil proceedings. There may be reasonable grounds to contemplate that litigation will be commenced by (say) a commercial counterparty even where there is no proper foundation for a claim. In contrast, criminal proceedings cannot be brought unless the prosecutor is satisfied that there is a sufficient evidential basis for prosecution. It is therefore likely to be easier to establish the first limb of the test for litigation privilege in the civil context.
  • The decision takes a strict approach to whether documents have been prepared for the dominant purpose of litigation, finding that even if litigation was in reasonable contemplation at the time the documents in question in this case were prepared, they were not prepared for the purpose of that litigation. The court found that the primary purpose here was to find out if there was any truth in allegations made by a whistleblower and (if there was) to decide what to do about it, and this was not sufficient.
  • Even if the purpose was to obtain advice in relation to a criminal investigation and minimise the risk of it happening, the court said this would not mean the documents were covered by litigation privilege. The court accepted that the purpose of conducting litigation includes the settlement of litigation once it is in train. However, it rejected the submission that litigation privilege extends to documents created to obtain legal advice as to how best to avoid contemplated litigation, even if that entailed seeking to settle the dispute before proceedings were issued. This seems a fine distinction, and an arbitrary one, which may give rise to significant problems in practice.
  • The court rejected an alternative claim for legal advice privilege over certain of the documents, which comprised lawyers' notes of interviews with their clients' employees, on the basis that there was no evidence that the interviewees were authorised to seek and receive legal advice on behalf of the client company. The decision strongly endorses the narrow approach to the question of who is the "client" for the purposes of legal advice privilege (as applied in the RBS case) which excludes those who are authorised only to communicate relevant facts to the lawyers, rather than seeking and obtaining advice on the company's behalf. The court comments that the decision in RBS is "plainly right" and there is no justification for departing from it. It does not however endorse the judge's obiter suggestion in RBS that the "client" may be restricted even further to comprise only those who are the "directing mind and will" of the organisation.
  • The court also rejected an argument that the lawyers' notes were privileged on the basis that they were lawyers' working papers, endorsing the decision in RBS that lawyers' working papers are privileged only if they would betray the trend of the legal advice.
  • The court accepted that a lawyer's summary of the facts, including information in the public domain, will be privileged if it is part of the continuum of communications between solicitor and client for the purpose of giving or receiving legal advice. This is consistent with the High Court's decision in PAG v RBS [2015] EWHC 3187 (Ch) (considered here).
  • The decision suggests that privilege is unlikely to attach to communications with individuals who are qualified lawyers but are not employed in a legal role, even if they are in fact giving legal advice. Here privilege was denied to advice given by ENRC's Head of Mergers and Acquisitions, even though he was a qualified lawyer, had previously been ENRC's General Counsel, and subsequently reverted to that role.   

According to press reports, ENRC has said it will appeal against the decision. James Norris-Jones, Rod Fletcher and Maura McIntosh consider the decision further below.

Background

The issues relating to privilege arise in the context of an ongoing criminal investigation by the SFO, which began in late April 2013, into the activities of ENRC, its subsidiaries, officers and employees. The investigation is focused on allegations of fraud, bribery and corruption in two foreign jurisdictions. ENRC denies the allegations. The decision notes that, depending on the outcome of the investigation, it may or may not lead to criminal prosecutions being brought.

As part of its investigation, the SFO issued notices under section 2(3) of the Criminal Justice Act 1987 against various parties, including ENRC, to compel the production of four categories of documents (the "Disputed Documents"):

  1. Notes taken by ENRC's lawyers (Dechert) of interviews they conducted of various individuals, including employees and former employees of ENRC, before the SFO's investigation began (prompted by allegations of a whistleblower). ENRC claimed that these documents were subject to litigation privilege, as the dominant purpose of the interviews was to enable Dechert to obtain relevant information and instructions and to provide ENRC with advice in connection with anticipated criminal litigation. In the alternative, it claimed legal advice privilege including on the basis that the notes could be characterised as lawyers' work product.
  2. Materials generated by forensic accountants as part of reviews of ENRC's books and records, with a focus on identifying controls and systems weaknesses and potential improvements. ENRC asserted litigation privilege over these documents on the basis that their dominant purpose was to identify issues which could likely give rise to prosecution by the SFO and to enable ENRC to obtain advice and assistance in connection with such anticipated litigation.
  3. Documents containing the factual evidence presented by the relevant partner at Dechert to ENRC's Nomination and Corporate Governance Committee and/or the ENRC Board. ENRC claimed that these documents were subject to legal advice privilege, but asserted litigation privilege in the alternative.
  4. Documents which independent counsel had determined did not attract privilege, including documents which essentially fell within category 2 above as well as two emails between a senior ENRC executive and Mr Ehrensberger, a qualified Swiss lawyer who was at that time ENRC's Head of Mergers and Acquisitions, but had previously been its General Counsel and subsequently resumed that role.

The SFO applied for a declaration that the Disputed Documents were not subject to legal professional privilege.

Decision

The High Court (Mrs Justice Andrews) granted the declaration sought, rejecting the claims to privilege, in respect of all the Disputed Documents save for category 3. The judge's exposition of the relevant legal principles is summarised below, together with her application of those principles  to the Disputed Documents.

Litigation privilege     

Communications will attract litigation privilege only if, at the time they are made, the following conditions are satisfied:  

  1. Litigation is in progress or reasonably in contemplation.
  2. The communications are made with the sole or dominant purpose of conducting that anticipated litigation.
  3. The litigation must be adversarial, not investigative or inquisitorial.

Litigation in reasonable contemplation

The judge found that ENRC had failed to establish that, at the time any of the Disputed Documents were created, litigation was in reasonable contemplation.

The judge accepted that ENRC anticipated that an SFO investigation was imminent. However, the investigation itself was not adversarial litigation; only the criminal prosecution was litigation for these purposes.

She rejected the submission that once a criminal investigation was reasonably contemplated, so too was a criminal prosecution. She noted that it is always possible that an investigation might lead to a prosecution, but said unless the person who anticipates the investigation is aware of circumstances that (once discovered) make a prosecution likely, there is not necessarily a real risk of prosecution. As the judge put it,

"… prosecution only becomes a real prospect once it is discovered that there is some truth in the accusations, or at the very least that there is some material to support the allegations of corrupt practices. In this case, there is no evidence that there was anything beyond the unverified allegations themselves."

The judge accepted that, in a civil context, a party may reasonably contemplate litigation, irrespective of the outcome of any investigation. However, she said the situation is different in a criminal context, due to the prosecutor's duty to be satisfied that there is a sufficient evidential basis for prosecution before bringing proceedings.

Dominant purpose of litigation

The judge accepted that advice given in connection with the conduct of litigation may include advice relating to settlement of that litigation once it is in train. So for example the privilege would protect an expert report on quantum to assist solicitors to advise the client on whether to accept or reject an offer made under CPR Part 36.

However, she rejected ENRC's submission that, by parity of reasoning, litigation privilege extends to third party documents created to obtain legal advice on how best to avoid contemplated litigation, even if that entails seeking to settle the dispute before proceedings are issued. She stated:

"There is no authority cited in support of that proposition, and it self-evidently contradicts the underlying rationale for the privilege. Equipping yourself with evidence to enable you to conduct your defence free from the risk that your opponent will discover how you are preparing yourself, and to decide what evidence you are planning to call if the case goes to court, and what tactics to employ, is something entirely different from equipping yourself with evidence that you hope may enable you (or your legal advisers) to persuade him not to commence proceedings against you in the first place."

Here, the judge said, even if litigation was in reasonable contemplation when the Disputed Documents were prepared, they were not prepared for the dominant purpose of deployment in, or obtaining legal advice relating to the conduct of, such litigation.

In relation to the category 1 and category 3 documents, the primary purpose of the investigation was to find out if there was any truth in the whistleblower's allegations and, if there was, to decide what to do about it. Even if the purpose was (as ENRC claimed) to advise in relation to a criminal investigation leading to a prosecution, and minimise the risk of that happening, this was not sufficient. In the judge's view, documents prepared for the avoidance of litigation, rather than its conduct, were not protected.

Moreover, the judge said, where a document is created with the intention or understanding that it will be shown to the prospective adversary (eg a position statement prepared for a mediation) it cannot be subject to litigation privilege. This principle also prevented privilege arising in most of the documents in these categories, as at the time the Disputed Documents were created, ENRC intended and expected that they would be shared with the SFO.

In relation to the category 2 documents, the dominant purpose of the documents generated by the forensic accountants was to meet compliance requirements or obtain accountancy advice on remedial steps as part of the books and records review. That had little or nothing to do with the preparation of a defence to, or obtaining legal advice in respect of, prospective criminal litigation.

Legal advice privilege

Legal advice privilege attaches to all communications passing between the client and its lawyers, acting in their professional capacity, in connection with the provision of legal advice. There is no need for litigation to be contemplated.

The "client" for privilege purposes

The judge endorsed the decision of Hildyard J in RBS regarding the proper scope of the "client" for privilege purposes in a corporate context, agreeing that the "client" comprises only those who are authorised to seek and obtain legal advice on behalf of the company. In particular, and in common with Hildyard J, she rejected the submission that the "client" extends to those who are authorised to provide information to the lawyers on behalf of the company.  She noted:

"If the client had been an individual, and the solicitor carried out evidence-gathering or fact-finding investigations by speaking to that individual's current employees, his communications with those employees would not be subject to legal advice privilege simply because he was obtaining the information from them for the purpose of giving legal advice to their employer. It makes no difference whether the employees have been authorised to speak to him or not."   

She added that there is no reason in principle for a corporate client to be in any better position than an individual just because a corporation can only act through its officers and employees.

The judge said she expressed no view on Hildyard J's further observations tentatively supporting the proposition that only individuals constituting part of the "directing mind and will" of the corporation could be treated as the client for privilege purposes.

In terms of who is likely to be the "client" in a given case, the judge commented that one would expect a company's Board of Directors to have authority to obtain legal advice on behalf of the company, though they might well delegate authority to another group or person. It might also be persuasively argued that the company's in-house lawyers or general counsel would have the necessary authority, by virtue of their office, to seek and obtain external legal advice. Whether they, or any other employees, had such authority in a given case was, she said, a question of fact to be determined on the evidence.

On the facts of the present case, the judge said the short answer to the alternative claim for legal advice privilege in respect of the category 1 documents was that there is no evidence that any of the interviewees were authorised to seek and receive legal advice on behalf of ENRC, and the communications between those individuals and Dechert were not communications in the course of conveying instructions to Dechert on behalf of the corporate client.

Lawyers' working papers

The judge found that privilege will also attach to a lawyer's working papers if (and only if) they would give the opposing party a clue to the advice which had been given.

She rejected ENRC's submission that working papers are privileged simply by virtue of their being made by the lawyer for his own use in his client's business or for the client's use. On the contrary, the protection exists only if they would betray the trend of the advice.

She also rejected a submission that the notes inevitably represented the work of the lawyer's mind and the lawyer's selection of what should be written down, so inevitably gave a clue to the trend of the advice. She noted that a similar claim for privilege was made and rejected by Hildyard J in the RBS case, albeit that it appeared the evidence in that case was of a better quality than in the present case. Here, she said, the evidence did not establish that the notes would give a clue as to any aspect of the legal advice given to ENRC.

Continuum of communication

The judge noted that information which would not ordinarily be privileged, even information which is already in the public domain, may fall under the umbrella of legal advice privilege if it is part and parcel of the continuum of confidential communication between lawyer and client whose purpose is the giving or receiving of legal advice.

On this basis, the judge concluded that the category 3 documents were plainly privileged, as they were prepared by Dechert for the specific purpose of giving legal advice to ENRC, even if they made reference to factual information that would not otherwise be privileged. As the judge put it, they were part and parcel of the confidential solicitor-client communication.

The "lawyer" for privilege purposes

In relation to the emails in category 4, the judge rejected ENRC's submission that they recorded "requests for and the giving of legal advice by a qualified lawyer acting in the role of a lawyer".

Although Mr Ehrensberger was a qualified lawyer, he was engaged by ENRC at the relevant time not as a lawyer but as a "man of business". The judge commented that Mr Ehrensberger may well have felt he was acting as a lawyer "because M&A work will often have a legal dimension to which he could bring the perspective of a qualified lawyer". But that was not good enough for privilege to attach; his professional duty was not to act as a legal adviser to ENRC. The documents were not privileged.

James Norris-Jones
James Norris-Jones
Partner
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+44 20 7466 2874
Rod Fletcher
Rod Fletcher
Partner
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+44 20 7466 2411
Maura McIntosh
Maura McIntosh
Professional support consultant
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+44 20 7466 2608

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