Litigation Privilege: rationale and scope defined — Guy Mansfield QC
10 September 2018
The Director of the SFO v ENRC  EWCA Civ 2006 – read judgment
Eurasian Natural Resources Corp, the defendant to the Serious Fraud Office’s application to enforce notices seeking to compel the production of documents, has had a chequered history in the last 10 years since it came to the London market (in January 2014 it delisted and went private). In December 2010, a whistleblower alerted the company by email to serious allegations of corruption, fraud and bribery within its group.
After substantial internal enquiries and investigations on the part of ENRC and professionals instructed by it, accompanied by correspondence and meetings between the SFO and lawyers instructed by ENRC, in February 2016 the SFO issued a Part 8 claim against ENRC. This sought a declaration that documents in for specific categories were not “information or… Any document which ENRC would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court” within the meaning of section 2 (9) of the Criminal Justice Act 1987. The SFO’s pleaded case was that neither litigation privilege nor legal professional privilege attached to the documents in the first place, not that any privilege had been waived.
The Documents and Judgment of Andrews J
In simple terms, four categories of documents were in issue:
1) notes taken by Dechert, solicitors, of the evidence given to them by individuals (including employees and former employees/officers of ENRC and its subsidiary companies; their suppliers and other third parties) when asked about the events being investigated.
2) Materials generated by FRA, forensic accountants, as part of the “books and records” reviews carried out. between 12 May 2011 and least 11 January 2013.
3) Documents indicating or continuing factual evidence presented by the then general counsel of ENRC to the company’s Nomination and Corporate Governance Committee and/or the main board on 14 and 15 March 2013.
4) 17 documents referred to in a letter dated 22 August 2014 sent to SFO by ENRC’s new legal team (Fulcrum) being FRA reports for which litigation privilege is asserted and copies of the FRA books and records reports documents in respect of which LPP was claimed, together with certain emails between a Swiss qualified lawyer who had previously been ENRC’s general counsel but at the material time was acting as its Head of Mergers and Acquisitions, i.e. not as lawyer.
After a four-day trial of the issue, the judge made an order declaring that the documents in the first, second and fourth categories were not privileged.
The Judgment of the Court of Appeal
The Court overturned the effect of Andrews J’s decision. It held that the documents in categories 1, 2 and 4 (save for two emails from a lawyer employee acting in a business capacity) were covered by litigation privilege. The judgment explains in clear terms:
- the proper approach to determining whether a document is protected by litigation privilege;
- that in respect of legal advice privilege, unless and until the Supreme Court overturns the decision of the Court of Appeal in Three Rivers (No. 5), that decision remains binding. Interestingly, it observed (para 130) that if it had been open to the court to depart from that decision it would have been in favour of doing so. This commentary does not explore that aspect.
The judgment rejects the judge’s overly restrictive view of litigation privilege. This had made serious inroads into its operation and practice particularly in the context of corporate enterprises faced with possible civil or criminal litigation. If the judge’s decision had been upheld the scope of litigation privilege would have been materially diminished in practice.
The judgment reminds us that litigation privilege is restricted to proceedings in a court of law:
communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied:
(a) litigation must be in progress or in contemplation;
(b) the communications must have been made for the sole or dominant purpose of conducting that litigation;
(c) the litigation must be adversarial, not investigative or inquisitorial.
In both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings.
Those were the matters at the heart of the ENRC dispute. The Court of Appeal held that the requirements were fulfilled sufficiently to avail the company and protect the documents under the cloak of litigation privilege. The Court overturned the judge’s finding that ENRC had failed to show that as at 19 August 2011 it was aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility.
The Court concluded that (para 93):
the whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement.
While the judge may have been justified in thinking that the process was at an early stage triggered simply by the whistle-blower email and press allegations, that did not mean that the SFO was not taking a serious and concerted interest in the company’s activities. Even if general counsel had wanted to create a situation where privilege covered what he was doing that did not mean that a criminal prosecution was not actually in contemplation. When the SFO specifically made clear to the company the prospect of its criminal prosecution (over and above the general principles set out in the Guidelines) and legal advisers were engaged to deal with that situation, there was clear ground for contending that criminal prosecution was in reasonable contemplation. In this case the documents and evidence pointed clearly towards the contemplation of a prosecution if the self-reporting process did not succeed in averting it.
Each case will turn on its own facts and will be judged in the light of the facts as a whole. Conversely whilst a party anticipating possible prosecution will often need to make further investigations before it can say with certainty that proceedings are likely, that uncertainty did not in the judgment of the Court itself prevent proceedings being in reasonable contemplation.
The judge had been wrong to suggest a general principle that litigation privilege cannot attach until either a defendant knows the full details of what is likely to be unearthed or a decision to prosecute has been taken. The fact that a formal investigation has not commenced will be one part of the factual matrix but will not necessarily be determinative.
The fact that solicitors prepare a document with the ultimate intention of showing it to the opposing party does not automatically deprive of litigation privilege the preparatory legal work undertaken. Discussions surrounding the drafting of such a letter would be as much covered by litigation privilege as any other work done in preparing to defend the claim. In both civil and the criminal contexts, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings (para 102).
The court reiterated that the test to be adopted in relation to documents prepared for reasons which only included (but were not limited to) the conduct of litigation is that identified by the House of Lords in Waugh v BRB  AC 520. Unless the purpose of submission to the legal adviser in litigation is at least the dominant purpose for which the relevant document was prepared, the reasons which require privilege to be extended to it cannot apply. But the exercise of determining dominant purpose in each case is a determination of fact. The court must take a realistic, indeed commercial view of the facts. If there was a dual purpose, the question is what was the dominant purpose?
In this case a criminal investigation and potential prosecution was reasonably in the contemplation of the company at the time that it commissioned DLA Piper to investigate. Where there is a clear threat of a criminal investigation, even at one remove from the specific risks posed by the SFO should it start an investigation, the reason for the investigation of the whistle-blower allegations must be brought into the zone where the dominant purpose maybe to prevent or deal with litigation.
Most importantly even if litigation was not the dominant purpose of the investigation at its inception, it is clear from the evidence that it swiftly became the dominant purpose.
On the facts, not only was a criminal prosecution reasonably in ENRC’s contemplation but the judge should have determined that the category 1 documents were brought into existence for the dominant purpose of resisting or avoiding those (or some other) proceedings. The same could be said of the FRA documents in categories 2 and 4 (the “books and records” review).