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Internal investigations not protected from disclosure?

Companies conducting internal investigations into suspected criminality need to think carefully in light of the recent decision in Director of the Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2017] EWHC 1017 (QB).

Sensitive internal investigations are sometimes handled by instructing a solicitor to conduct the investigation on a client’s behalf, with the intention that the documents produced by the investigation will be protected from disclosure to regulators by legal advice privilege or litigation privilege. The effectiveness of this approach looks precarious in light of the judgment in the ENRC case, though it does reveal the steps that can be taken to put privilege on a firmer footing.

Litigation privilege affords protection to material prepared for the conduct of reasonably anticipated litigation.

Legal advice privilege attaches to confidential communications between solicitors and their clients for the purposes of giving or receiving legal advice – even communications made when litigation is not in contemplation.

If it survives an appeal, the ENRC case has prescribed some significant limitations to the law of privilege:

  • Anticipation of an investigation will not in itself suffice as ‘anticipation of litigation/prosecution’. Criminal proceedings cannot reasonably be contemplated unless the prospective defendant knows enough about what the investigation might unearth to appreciate that a prosecutor stands a good chance of securing a conviction. Fact-finding investigations which precede a realisation that a prosecution is likely cannot therefore satisfy the requirement.
  • Documents created with the express purpose of showing them to an adversary, or with the intention or understanding that it will be shown to them, cannot be privileged.
  • Privilege does not extend to third-party documents created with the intention of obtaining legal advice on how best to avoid litigation.
  • Communications between clients and third parties, such as professional advisers who are not lawyers, are not subject to legal advice privilege. Interposing a lawyer in the chain of communication will not improve the client’s chances of claiming legal advice privilege. (Though litigation privilege may still apply).
  • In the case of a corporate client, privilege only attaches to communications between the lawyer and those individuals authorised by the company to obtain the legal advice. It does not extend to other officers or employees of the company, however senior.

ENRC struggled with elements of its case because it was not able to adduce evidence of the motivations and judgments that underpinned the internal investigation. The facts of the case highlight the crucial importance of making a record of the reasons why litigation is anticipated and also of the motivations behind the investigation, so that its dominant purpose can be discerned at a later date. The judgment in this case is controversial and has been criticised as “unprincipled and illogical” by ENRC’s lawyers. It will almost certainly be challenged in the Court of Appeal; however, companies currently involved in pre-prosecution, internal investigations should act quickly to put the basis of privilege on a firm footing and/or to consider what documents ought to be produced.

For more information on any of the issues raised in this article or for regulatory matters in general, contact Head of Regulatory Corporate Crime, Ben Derrington by emailing bderrington@lyonsdavidson.co.uk or calling 0117 904 6319.

Posted on May 25th, 2017 by Lyons Davidson

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