The SFO v ENRC: Erosion of fundamental rights and dangerous precedent or a valid aid to law enforcement?


Author: Frances Jenkins


Eurasian Natural Resources Corporation Ltd (ENRC) has been granted permission to appeal the controversial ruling in Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB)  which sent shock waves through the legal profession earlier this year.

The appealed decision held that certain documents generated during an internal investigation conducted by lawyers into allegations of bribery and corruption were not protected by litigation privilege, and therefore could be used by the SFO in the prosecution of alleged offenders. With corporations being encouraged to police their operations and to put in place systems to protect them from abuse, the decision was seen as unhelpful by some in that it might discourage openness within organisations and restrict access to legal advice.

Background

In December 2010, ENRC instructed solicitors, Dechert, to conduct an internal investigation into allegations of bribery and corruption in ENRC’s operations in Kazakhstan and Africa made by a whistle-blower. The SFO became involved in 2011 after an MP raised questions in Parliament about ENRC’s conduct and the SFO drew ENRC’s attention to the SFO’s self-reporting guidelines. Dialogue followed between the parties, and meetings in which ENRC repeatedly assured the SFO that it was committed to transparency and a full and frank process. However, the SFO lost patience and commenced a criminal investigation in April 2013.  As part of the investigation the SFO applied to court for a declaration that certain documents generated during ENRC’s internal investigation were not subject to legal professional privilege, meaning those documents could be used in any SFO prosecution.

Legal professional privilege includes two categories of privilege:

  1. legal advice privilege which protects communications between a lawyer and their client for the purposes of giving and receiving advice; and
  2. litigation privilege which extends to communications between a lawyer, his client and third parties (such as accountants) which come into existence once litigation is contemplated and for which litigation is the dominant purpose.

The disputed documents were divided into four categories in respect of which privilege was claimed:

  1. Category 1 – Dechert’s notes of the evidence given to them by various individuals, which ENRC claimed were subject to litigation privilege because the dominant purpose of the interviews was to enable Dechert to obtain information with which to advise ENRC regarding the anticipated strict criminal litigation.
  2. Category 2 – material generated by forensic accountants as part of a review of ENRC’s records focusing on identifying control and system weaknesses and potential improvements which could be made to those systems. ENRC claimed litigation and advice privilege over these documents, saying that the dominant purpose of the reports was to identify issues likely to give rise to intervention and prosecution by law enforcement agencies and to enable ENRC to obtain advice and assistance in connection with such anticipated litigation.
  3. Category 3 – documents indicating or containing the factual evidence presented by Dechert to ENRC’s Nomination and Corporate Governance Committee and Board in March 2013.
  4. Category 4 – communications between a senior ENRC executive and ENRC’s Head of Mergers and Acquisitions who was a qualified Swiss lawyer. Legal advice privilege was claimed as the communications recorded requests for and the legal advice given by a qualified lawyer acting in his capacity as a lawyer.

Judgment

Litigation privilege

ENRC failed to establish that the documents were protected by litigation privilege; the Judge, Mrs Justice Andrews, considered that criminal proceedings were, at the relevant time, not even a “distinct possibility” and, at most, were part of a range of hypothetical outcomes from a hypothetical SFO investigation.

She also held that the commissioning of a mere fact-finding investigation, with a view to ENRC obtaining legal advice on what to do once the facts were known, did not mean that the information provided to the investigators by third parties would be subject to litigation privilege as an SFO investigation was not “adversarial litigation”.

Legal advice privilege

Mrs Justice Andrews also found that there was no evidence that any of the persons interviewed by Dechert were authorised to seek and receive legal advice on behalf of ENRC. Thus the communications arising from the interviews were not communications in the course of conveying instructions to Dechert on behalf of the corporate client.

In relation to the fourth category of documents, Mrs Justice Andrews held that communications with the ENRC’s Head of Mergers and Acquisitions, despite his being a qualified lawyer, did not attract legal advice privilege since he was engaged by ENRC, at this time, not as a lawyer but as a “man of business”. This privilege did not attach to his communications even if legal advice were being sought and was given in the exchange. Mrs Justice Andrews commented that, if the person sending the communication wanted to be protected by privilege, the communication should have been sent to ENRCs General Counsel, not to the Head of Mergers.

Comment

As Mrs Justice Andrews herself stated, legal professional privilege is a fundamental human right guaranteed by common law, and a principle which is central to the administration of justice. The purpose of legal professional privilege is to enable a client to disclose all material facts in order to obtain proper legal advice and representation. The Government and the SFO are trying to encourage corporate cooperation in relation to eradicating bribery and corruption. However, this decision could have the opposite effect and actually lead to companies burying their heads in the sand when it comes to corporate governance, for fear of essentially doing all of the hard investigatory work for criminal authorities to the company’s potential detriment. Furthermore, and arguably more importantly, the decision has the potential to fundamentally erode the position of trust between client and lawyer.

It is also extremely odd that it is now easier to establish a claim for litigation privilege in a civil context than a criminal one. Given the potential financial and reputational ramifications of a criminal conviction, as opposed to an unsuccessful civil claim/defence, this cannot be right.

We welcome the decision of the High Court to allow ENRC permission to appeal so that the Court of Appeal may provide clarity on this issue.

Frances Jenkins, Associate, Fladgate LLP (fjenkins@fladgate.com)

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