The decision of the Court of Appeal in the awaited SFO v ENRC case has provided some relief to both solicitors and corporate organisations that documents prepared during the course of regulatory investigations will not have to be disclosed if a prosecution is later pursued. It does however highlight that great care needs to be taken in any internal investigation to avoid problems in future with privilege.
The case concerned certain categories of documents generated during the course of internal investigations into ENRC’s activities following allegations of fraudulent practice in Kazakhstan and Africa. The SFO became aware of the allegations and commenced a criminal investigation into ENRC’s activities. ENRC initially co-operated with the investigation but when discussions between the two broke down, the SFO sought to exercise its powers to compel production of the documents. ENRC asserted the documents, which had been created by its solicitors and forensic accountants, were privileged and could be withheld from the SFO. They argued that two separate forms of legal privilege applied – firstly to documents created when litigation is anticipated or in progress, and secondly to documents that contain legal advice.
The SFO applied for a declaration from the High Court that the documents were not privileged under either category. Mrs Justice Andrews allowed the SFO’s claim that three categories of documents, including solicitors’ notes of interviews with ENRC employees, internal email correspondence and reports prepared by forensic accountants, were not protected by legal privilege. ENRC subsequently appealed to the Court of Appeal and the Law Society intervened in the appeal which raised important concerns as to the scope of legal privilege over documents created prior to proceedings.
Court of Appeal decision
The Court of Appeal overturned the High Court decision, ruling that the Judge had been wrong to conclude that the prospect of a criminal prosecution had not been in the reasonable contemplation of the parties when the documents had been created. Prior to this time, the SFO had made clear to ENRC that criminal prosecution was a possibility and ENRC undertook investigations in light of that. These investigations included engaging solicitors to investigate the alleged fraudulent activities relating to an African company acquired by ENRC in 2010 and instructing forensic accountants to undertake a review of ENRC’s accounting records. The Court held that the need for further investigation to decide whether a prosecution should happen did not prevent litigation privilege attaching to documents created before the decision to prosecute was made as the proceedings were in reasonable contemplation at the time.
The Court of Appeal also disagreed with the first instance Judge’s assessment of the purpose of the documents and decided that the dominant purpose of creating the documents had been to avoid or resist the contemplated criminal proceedings. The Court of Appeal ruled this allowed ENRC to rely on litigation privilege even where documents were prepared in an attempt to settle proceedings.
The Court of Appeal concluded all of the categories of documents were protected by litigation privilege and the SFO cannot seek production. The judgment will provide some comfort to corporate entities and their legal advisors that documents created during investigations will be privileged even where the decision to start criminal proceedings has not been taken.
The case highlights and re-enforces the need for businesses to take great care when becoming aware of facts that may give rise to potential litigation and caution should be exercised in producing documents. It is important to take advice and involve lawyers at an early stage so that steps can be taken to maximise the chances of maintaining privilege over documents that are created to address the issue. Without the protection of privilege, the documents would almost certainly have to be disclosed in later litigation arising out of the factual background which could be very damaging to the case.
A potential pitfall created by earlier case law has been that dissemination of legal advice to a wider than necessary group of individuals within a business can lead to the loss of privilege in those documents. The Court of Appeal recognised this is likely to put large corporations at a disadvantage when seeking legal advice compared to smaller businesses. Whilst it found this to be unsatisfactory it felt unable to depart from previous decisions but suggested it was a matter for consideration by the Supreme Court. The position remains therefore that privilege extends only to those within the business that are tasked with seeking and obtaining legal advice.
The Director of the Serious Fraud Office v Eurasian Natural Resource Corporation Limited  EWCA Civ 2006