Internal investigations and the limits of privilege

For further information, please contact:

Bree Taylor, Partner, Fladgate LLP (btaylor@fladgate.com)

Steven Mash, Partner, Fladgate LLP (smash@fladgate.com)

Summary

The High Court recently ruled, in a landmark case brought by the Serious Fraud Office (SFO), that the Eurasian Natural Resources Corporation (ENRC) must hand over documents generated by an internal investigation by the company, including notes taken by lawyers of interviews with ENRC’s employees.

The SFO’s application was made in the course of its ongoing criminal investigation relating to ENRC’s activities in Kazakhstan and Africa. As part of its investigation, the SFO sought to compel ENRC to produce a range of documents which ENRC claimed were protected by litigation privilege. However, ENRC’s argument failed at the first hurdle.

This decision is likely to have significant consequences for the conduct of corporate internal investigations. It will be harder for corporations to claim litigation privilege over internal documents, even where they have been prepared by lawyers.

Litigation privilege

The purpose of litigation privilege is to enable someone to prepare for anticipated litigation by protecting from disclosure documents prepared for that purpose. Litigation privilege will apply to communications or documents where the following conditions are satisfied:

• litigation must be in progress, or reasonably in contemplation;
• communications or documents must be made with the sole or dominant purpose of conducting the anticipated litigation; and
• the litigation must be adversarial, not investigative or inquisitorial.

Key points from the ENRC case

• The court found that the test of whether litigation is in reasonable contemplation is not satisfied just because a criminal investigation is underway. A criminal investigation by the SFO is a fact finding exercise and will in most cases not be treated as being sufficiently adversarial for the purposes of litigation privilege.
• Only a prosecution (not an investigation) amounts to “litigation” for these purposes, and to have a reasonable contemplation of prosecution, a person must be aware of circumstances which would make prosecution likely. In other words, a 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 ruled that, even if a prosecution had been reasonably in contemplation by ENRC, none of the documents in question were created with the dominant purpose of being used in the conduct of such litigation. At the time the investigation was being carried out, the primary purpose was to find out if there was any truth in the allegations and then to decide what to do about it if there was.

Conclusion

This decision follows the recent trend in England towards limiting the ambit of privilege and has made it more difficult for companies conducting internal investigations into possible criminal conduct to be claim litigation privilege over documents produced in the course of that investigation. As a result, companies should be careful when considering an internal investigation and should seek advice from experienced solicitors about how best to plan and execute that investigation.

SFO v Eurasian Natural Resources Corporation [2017] 1017 (QB)