Legal professional privilege, corporate corruption and compliance: The ENRC appeal
February 12, 2019
This article was originally published in Leeds & Yorkshire Lawyer: The Official Journal of Leeds Law Society December 2018 edition, Issue 155.
Last September, the Court of Appeal handed down judgment in The Director of the Serious Fraud Office v Eurasian Natural Resources Company (“ENRC”)  EWCA Civ 2006. It was the first full consideration of the application of legal professional privilege in the context of criminal investigations.
ENRC was a company engaged in the mining and natural resources sector, largely through its subsidiary in Kazakhstan but was also expanding into Africa. Those operations carried clear risks of bribery and corruption. Also coming into force was the Bribery Act 2010 which, under s.7, creates corporate criminal strict liability for a failure to prevent bribery, subject to a defence of proving that the company had adequate procedures in place to prevent it. So it was that, after a whistleblower e-mail in late 2010, ENRC instructed DLA Piper to undertake a fact-finding internal investigation into allegations of corruption made against its Kazakhstani subsidiary. As ENRC’s head of compliance put it in an e-mail, “I predict a sh!tstorm and an SFO dawn raid before summer’s over.”
The SFO commenced criminal proceedings in 2013 and, pursuant to their s.2 CJA 1987 powers, required production of the documents which had been drafted during that internal investigation, including records and notes of 184 employee interviews and a books and records review by forensic accountants. Production can be refused on the grounds of legal professional privilege. The central finding in the recent judgment by a strong Court of Appeal (Sir Brian Leveson, Sir Geoffrey Vos and Lord Justice McCombe) is that such documents (with the exception of two emails) had been drafted for the dominant purpose of resisting or avoiding criminal proceedings and so were covered by litigation privilege.
That of course is a question of fact in each case where litigation privilege is claimed. There needs to be a real likelihood of either civil or criminal proceedings. In a criminal context, there might well be such a real likelihood before any contact with the police or prosecuting agency. What is helpful for those of us advising companies who are concerned with the risks of bribery and corruption is that the Court made some broader public policy observations. Heading off, avoiding or settling proceedings is a proper purpose within the scope of litigation privilege. Courts must take a realistic and commercial view of the facts when it comes to establishing the dominant purpose. It was obviously in the public interest that companies should not lose the benefit of LPP when they are investigating allegations of wrongdoing internally before going to a prosecutor. If they couldn’t claim it, they may not investigate at all, for fear of being forced to reveal what they had uncovered.
Of course, refining the long-standing example operated in the US, we now have a deferred prosecution agreements (DPA) scheme for companies, set out in Schedule 17 of the Crime and Courts Act 2013. That scheme is supposed to encourage companies to self-report and fully cooperate with prosecutors, who may not look too kindly upon a company who simply hides behind LPP, quoting the ENRC judgment. Whether or not the company is willing to waive their privilege in relation to internal investigation documents is then a highly relevant factor when considering the cooperation of the company and, accordingly, the willingness of a prosecutor or court to agree a DPA as an alternative to a full-blown criminal prosecution. The Court of Appeal observed, “Had the court been asked to approve a DPA between ENRC and the SFO, the company’s failure to make good on its promises to be full and frank would undoubtedly have counted against it.”
The Court also confirmed the narrower ambit of legal advice privilege, which will only apply to communications between lawyers and those within the client firm authorised to give instructions or receive advice. It was bound by previous authority on this point, although unusually was emboldened to criticise these restrictions, “If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice. In our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach.”
Where does this leave us? The ruling makes it easier for companies to assert privilege over documents prepared in contemplation of criminal or civil proceedings, even where they were created with the purpose of avoiding such proceedings. This will undoubtedly encourage internal investigations, in anticipation of action not only by the SFO but other regulatory bodies such as HMRC, the FCA and the Competition and Markets Authority.
There is plainly a public interest in encouraging companies properly to investigate their own potential wrongdoing, where the damaging effects of corruption can be so pervasive. On the other hand, the ability of the SFO and similar agencies to obtain material generated from an internal investigation has been reduced. As the Court saw it, the SFO can’t have it both ways. Either promise not to prosecute and see the underlying material or leave a criminal prosecution on the table but don’t expect to be able to compel underlying material which could be incriminating. In my view, certainly when it comes to corporate criminal investigations, the Court of Appeal struck the right balance. Bribery and corruption have such wide ranging and corrosive effects. We have a woefully underused DPA scheme which is a vital tool in encouraging a healthy corporate culture. Companies can now carry out internal investigations with greater control over the destiny of the documents created, while also knowing that timely cooperation and a voluntary waiver of privilege is advisable if they wish to negotiate a settlement.
Nick Johnson QC is a member of the criminal team at Exchange Chambers. He also collaborates with Bright Line Law. He is one of only five regional practitioners with a Band 1 Silk Ranking for Financial Crime in Chambers & Partners 2019.