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A long time coming: SFO’s tough stance on privilege vindicated by UK court

May 18, 2017


In a landmark ruling, the High Court in London has said that interview notes – made by ENRC’s external law firm as part of internal investigations into allegations of corruption in Kazakhstan and Africa – are not protected by legal professional privilege.


Mrs Justice Andrews’ 8 May decision, which Eurasian Natural Resources Corporation (ENRC) is appealing, vindicates the Serious Fraud Office (SFO) in its years’ long dispute with business lawyers over privilege and internal investigations. Companies have long claimed that documents created during internal investigations into allegations of wrongdoing, including interviews with key witnesses and senior employees, are protected by legal professional privilege.


While the SFO respects the rights of companies to claim privilege, it believes some lawyers are making spurious privilege assertions over internal investigations to obstruct its inquiries. In a well-known interview in February 2015 with The Times, SFO director David Green said: “These companies call in outside lawyers, who make a lot of money by doing an investigation and are the first to interview key witnesses at the coal face, then claim privilege — it is absolutely ludicrous.” He added that lawyers were effectively “ploughing up the crime scene”.


Green’s position on privilege has been repeated by senior SFO staff at numerous conferences and talks. The reaction from business lawyers in London has been hostile with some arguing that the SFO has mounted a measured “attack” on legal professional privilege and the legal rights of companies.


However, the ENRC ruling, if allowed to stand, supports the SFO’s strategy of fighting spurious privilege claims in court, and will hopefully result in clearer rules for when privilege can be asserted. This is particularly important in relation to the UK’s quick-developing deferred prosecution agreement (DPA) regime.


The recent £671 million Rolls-Royce settlement in January was the first time a company failed to inform authorities of wrongdoing and still secured a DPA. It suggests that factors other than self-reporting, particularly whether a company has waived privilege, as Rolls-Royce did, will be more important in determining whether they secure a DPA. The ENRC decision by clearly setting out where privilege can be asserted, also establishes more clearly what counts as a waiver.


Prosecution of ENRC not a real prospect


The root of ENRC’s dispute with the SFO is the company’s claim that notes from internal investigation interviews carried out by its external law firm, Dechert were covered by two types of legal protection: litigation privilege and legal advice privilege. The latter protects communications made in confidence between a lawyer and their client for the purpose of providing legal counsel. The former protects documents prepared for litigation, such as a civil dispute or criminal prosecution.


Litigation privilege only applies where a dispute is in progress, or at least reasonably in contemplation, and the document in question is created for the sole or dominant purpose of conducting the litigation. Mrs Justice Andrews ruled that the disputed documents in ENRC’s claim failed to meet any of these criteria, and so were not protected by litigation privilege. The notes from Dechert’s internal investigation interviews were created between August 2011 and March 2013 when it was not under investigation by the SFO. Nor was prosecution a real prospect at this time, said Mrs Justice Andrews.

The SFO first contacted ENRC on 10 August 2011, the day after Times published allegations of corruption against the company. The two organisations subsequently entered into a period of dialogue for over one-and-a-half years, which resulted in over 30 meetings between ENRC or its lawyers, and the SFO.


During this period, Neil Gerrard, the Dechert partner representing ENRC, and Beat Ehrensberger, the company’s general counsel, with the blessing of ENRC’s board, made a number of presentations to the SFO providing information gleaned from internal investigations, including the final report from the Kazakh strand of the inquiry. The goal of this dialogue with the SFO was to avoid prosecution and possibly enter into a settlement.


The often strained cooperation between ENRC and the SFO ended in the spring 2013, when Gerrard (who had been the primary contact with the SFO), and chairman Mehmet Dalman (who was leading the internal investigation and had staked his reputation on getting to the bottom of the allegations of corruption) left the company. The SFO formally opened a criminal investigation in April 2013.


ENRC claimed that litigation privilege applied to documents created during this period of cooperation, because a SFO investigation, and a resulting criminal prosecution, was reasonably in contemplation.


Mrs Justice Andrews countered that: “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.” She added that no evidence had been presented to her to substantiate allegations against ENRC.


If Mrs Justice Andrews’ argument is followed, a company accused of misconduct can claim litigation privilege if it is aware of sufficient evidence of wrongdoing to make prosecution a real prospect. However, it seems unlikely that a company would present evidence of its own wrongdoing to a judge to support a claim for litigation privilege. If the decision stands, it will considerably reduce the scope for this type of privilege to be asserted.


Mrs Justice Andrews also disputed whether the documents concerned were created for the dominant purpose of conducting a litigation. She stated that Dechert’s internal investigation was primarily an information gathering exercise, aimed at getting to the bottom of corruption allegations, rather than providing legal advice about contemplated litigation. Furthermore, ENRC’s engagement with the SFO in the period in question suggested that the company was carrying out its own investigations with the dominant purpose of sharing them with the SFO to avoid adversarial litigation, Mrs Justice Andrews added.


Alarm in the English legal community


ENRC further claimed that Dechert’s internal investigation interviews of company employees, former staff, suppliers and third-parties were covered by legal advice privilege.


Legal advice privilege is designed to encourage frank and open communications between a lawyer and their client. However, English courts have interpreted the term “client” narrowly, as only applying to individuals who are expressly authorised to obtain legal advice on a company’s behalf. Communications between lawyers and employees outside of this tightly defined client group, however senior, are not protected by legal advice privilege.


ENRC argued that any individual, including third-parties, if authorised by the company to participate in an internal investigation interview with Dechert, count as part of the client group. Their interviews are therefore protected by legal advice privilege, ENRC said.


However, Mrs Justice Andrews rejected ENRC’s argument, saying employees and third-parties taking part in an internal investigation interview with a lawyer do not automatically become part of the client group.

The narrow definition of client in relation to legal advice privilege has for many years been a controversial and hotly debated topic in UK legal circles.


Business lawyers have widely criticised the narrow definition, arguing that it makes life exceedingly difficult for companies carrying out internal investigations. In numerous books, articles and conferences, they have argued that the narrow definition of client should be reviewed by the courts and replaced by something broader.


Some lawyers in the UK have even adopted a liberal interpretation of legal advice privilege, applying it almost without exception to notes from internal investigation interviews.


Until recently there was a lack of court decisions directly challenging this wide interpretation. However, in the last few months there have been three: Mrs Justice Andrews ruling in the ENRC dispute, and two decisions at the end of 2016 rejecting the legal advice privilege claims advanced separately by the Royal Bank of Scotland and pharmaceutical manufacturer AstraZeneca. In these two cases, the High Court rejected the claim that notes created by lawyers during interviews and conversations with employees were covered by legal advice privilege.


The trio of decisions has created alarm in some parts of the English legal community with some lawyers making exaggerated predictions of an impending crisis. One law firm has said that the ENRC decision may lead to the “ultimate demise” of cooperation between companies and the SFO.

However, reactions such as this disguise the plain fact that the ENRC decision has made clear: the SFO, rather than eroding and attacking legal rights as some have suggested, has been following a reasonable interpretation of English privilege law.


If the ENRC decision stands, it will spur the SFO to continue on its path of challenging spurious claims of privilege that muddy the crime scene, and cloak it in secrecy. It could also reduce long, protracted negotiations between companies and the SFO over privilege, potentially resulting in quicker investigations, prosecutions and settlements.

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