SFO v ENRC in the Court of Appeal

On 5 September the Court of Appeal handed down an important judgment on both legal advice privilege and litigation privilege. We will summarise the background to the case, the approach of the first instance judge, the contrasting approach of the Court of Appeal, and finally offer some thoughts about where the decision leaves the law of legal professional privilege (LPP). 

A basic anatomy of LPP
It is established at the highest levels of authority that LPP is a fundamental right at common law, and a fundamental condition upon which the administration of justice depends. It has repeatedly been recognised and protected by parliament. It is closely related to other fundamental rights such as access to court, fair trial rights and privacy.

LPP is a single integral privilege, with two subheads. The first is ‘legal advice privilege’, which applies to communications between clients and their lawyers in connection with the giving of legal advice. It applies not just to the advice given, but also to the instructions communicated to the lawyer in order for such advice to be given. Indeed, as the older cases make clear, the core justification for the privilege is that clients are more likely to be candid with their lawyers if they can be reassured that the law will properly protect what they are about to convey. However, legal advice privilege does not apply to communications between a client (or the client’s lawyer) and third parties. 

The second subhead is ‘litigation privilege’. This can apply to communications with third parties. But it can only apply when adversarial litigation is reasonably in prospect, and will only protect communications which have the dominant purpose of the conduct of such litigation. 

Three Rivers and corporate clients
In Three Rivers No 5 the issue was whether certain communications between employees of the Bank of England and the bank’s solicitors were privileged. Litigation privilege was not in issue, because the context was an inquiry not adversarial litigation. The matter turned on legal advice privilege. 

The Court of Appeal held that the relevant communications were not privileged, because an internal unit of the bank was ‘the client’, rather than the bank’s employees. The court, considering case law from the 19th century, stated that a mere employee of a corporate entity, no matter how senior, was not to be equated with ‘the client’, but rather as an ‘independent agent’ or third party. 

The decision caused consternation to lawyers, particularly those who advise corporate clients. A separate appeal in Three Rivers No 6, concerning a subsequent disclosure application, had clarified and upheld certain aspects of legal advice privilege. But that decision had left untouched the Court of Appeal’s ruling in Three Rivers No 5, which appeared to say that an employee of the company could not be regarded as ‘the client’ unless specifically authorised to obtain legal advice. 

ENRC – essential facts
ENRC, a mining company, became aware of allegations (made by a whistleblower) of corruption and other wrongdoing. It instructed external lawyers to assist with investigating those allegations. It also instructed forensic accountants.  Subsequently, some of the allegations became publicly known. The Serious Fraud Office in August 2011 wrote to ENRC’s general counsel asking for a meeting and referring to the self-disclosure process. Between 2011 and 2013, the external lawyers interviewed a number of ENRC employees, ex-employees and other individuals, generating a large number of interview notes as part of the investigation; and the accountants similarly generated material as part of their analysis. The SFO ultimately invoked its statutory power to inspect these documents. ENRC refused, relying on LPP. The SFO commenced a Part 8 claim, seeking a declaration from the High Court that the documents were not protected by LPP.

ENRC – judgment at first instance
The judge (Andrews J) granted the application sought by the SFO in relation to the interview notes and the accountants’ materials. In relation to the interview notes, she held that she was bound by Three Rivers No 5 and so the lawyers’ discussions with the company’s employees to find out what had happened were not protected as they did not involve ‘the client’. More controversially, the judge then held that litigation privilege did not apply either, essentially for two reasons. 

First, litigation was not reasonably in prospect when the interviews took place. The SFO had commenced an investigation, but that was not the same as a criminal prosecution (litigation). A criminal prosecution could only be reasonably contemplated once the potential defendant had sufficient knowledge of the facts to be able to say that the prosecutor was realistically going to be satisfied that there was a good chance of obtaining a conviction. There was insufficient evidence of that here. 

Second, the ‘dominant purpose’ requirement of that limb of LPP was not met. The judge drew a contrast between the purpose of avoiding litigation and the purpose of conducting litigation, suggesting that the former was an invalid purpose within litigation privilege. She also held that the documents had always been intended to be shown to the SFO and that such documents could not in principle attract LPP.

ENRC – Court of Appeal’s approach to litigation privilege
(a) Was litigation in reasonable contemplation?
The Court of Appeal held that the judge’s approach to this issue was wrong. During the course of 2011, ENRC had appointed external lawyers to investigate serious whistleblower allegations made against it. Its general counsel had warned that he expected an investigation by the SFO, and external lawyers had specifically advised that ‘criminal and civil proceedings can be reasonably said to be in contemplation’. Interviews with lawyers had commenced and the forensic accountants were reviewing the relevant materials. The SFO had formally written to ENRC outlining its concerns. The whole context of that line of communication was the spectre of a criminal prosecution being brought. The Court of Appeal’s view was that litigation was certainly in contemplation by then, and indeed at an earlier point when the internal investigation had commenced in April 2011. 

The court did not, however, limit its analysis to a re-evaluation of the factual evidence, but made various important statements of principle:

(i) It is a question of fact in each case as to whether the defendant is ‘aware of circumstances which rendered litigation between itself and the [prosecutor] a real likelihood rather than a mere possibility’ (the test in US v Philip Morris adopted).

(ii) Very importantly, the distinction drawn by the judge between civil and criminal proceedings was incorrect. ‘It would be wrong for it to be thought that, in a criminal context, a potential defendant is likely to be denied the benefit of litigation privilege when he asks his solicitor to investigate the circumstance of any alleged offence’ (paragraph 99).

(iii) The reasonable contemplation of litigation can occur before police/government contact, as it did on these facts. Evidence of legal advice, contemporaneous statements and actions of company executives/external lawyers are all relevant and cannot be ignored in determining the date when a reasonable contemplation arises.

(iv) Once there is contact from the SFO which refers to possible prosecution and legal advisers are instructed in that regard ‘there is a clear ground for contending that criminal prosecution is in reasonable contemplation’ (paragraph 96). 

(v) Uncertainty about the underlying facts, on the part of the person claiming privilege, does not in itself prevent litigation from reasonably being in contemplation. Again, this is a vital principle, especially for large organisations which typically cannot be aware of all relevant facts before they seek to deal with possible legal threats.  

(vi) The passage in R v Jukes [2018] EWCA Crim 176 in which the Criminal Division of the Court of Appeal upheld Andrews J’s approach was obiter. 

(b) Dominant purpose
The Court of Appeal held that the purpose of heading off, avoiding or settling reasonably contemplated proceedings is within the scope of litigation privilege, just as advice on resisting or defending such contemplated proceedings is. The judge’s attempt to carve out the avoidance or settlement of litigation as somehow being illegitimate purposes (from the point of view of litigation privilege) was wrong. With respect, this has to be right. 

Further, in the determination of a person’s dominant purpose, the court must take a realistic and commercial view of the facts. In this case, it might be thought that there were two potentially competing purposes: (i) the investigation of facts ‘to see what had happened and deal with compliance and governance’; or (ii) the purpose of defending future proceedings. But the ‘stick’ of the criminal law was an essential part of the context, and it is apparent that the Court of Appeal believed that any such distinction was insignificant in that context (see paragraphs 108-109). The dominant purpose of both the interview notes and the forensic accountants’ materials was to resist or avoid a contemplated criminal prosecution. It was ‘obviously in the public interest’ that companies should not lose the benefit of LPP when investigating allegations of wrongdoing before going to a prosecutor (see paragraph 116). 

On the facts, further, the judge had been wrong to find that the materials had been promised to the SFO by ENRC – the evidence showed that ENRC had never expressly agreed to disclosure.

Court of Appeal approach to legal advice privilege
The finding that litigation privilege applied effectively disposed of the live issues in the appeal. However the Court of Appeal was pressed to address legal advice privilege in its judgment. It accepted the SFO’s argument that Three Rivers No 5 had decided that communications between an employee of a corporation and the corporation’s lawyers could not attract legal advice privilege unless that employee was tasked with seeking and receiving such advice on behalf of the client. 

However, in a striking move, the Court of Appeal then specifically stated that, had it been open for it to do so, ‘we would have been in favour of departing from Three Rivers No 5’ (paragraph 130). It explained why.  

First, the Court of Appeal’s reasoning in Three Rivers No 5 was primarily based on the interpretation of a line of 19th century authorities. Those dated from a time in which the distinction between litigation privilege and legal advice privilege had been in its infancy. They were not grappling with the application of legal advice privilege in a modern corporate context. Such case law should not be centre stage, and there should instead be a more principled analysis. 

Second, on that principled analysis, legal advice privilege should not be unavailable to larger businesses. These need to take legal advice just as small companies and individuals do. In practice, relevant information is unlikely to be in the hands of the board, but it is likely to be known by other employees within the corporate body. 

Third, the rule in Three Rivers No 5 is out of step with much of the common law world (and has been specifically rejected in at least two other jurisdictions as being unprincipled and/or impracticable) and this is undesirable.

Implications of ENRC
Of course it remains that any claim to privilege will turn on the facts. However, from the point of view of development of the law, ENRC represents an important corrective move from the Court of Appeal, strongly defending litigation privilege in particular and applying some realism to its application in the criminal context. 

The decision recognises, for example, that investigations into criminal allegations will often require the engagement of external lawyers, that the scope of their work is important, and that the underlying facts will not typically be known by the board or GC. Such investigations are, following ENRC, in principle far more likely to be protected by litigation privilege. 

Further, litigation can in principle reasonably be contemplated even if there has not yet been any accusation of criminal activity (or indeed any correspondence at all) from the prosecuting authority. And the client does not have to know the facts with any certainty to contemplate the possibility of prosecution, and to do so reasonably. Still less is there any suggestion in the Court of Appeal’s analysis that a defendant is, in effect, required to incriminate himself by explaining how his opponent has a reasonable prospect of securing a conviction, as Andrews J appeared to contemplate. Moreover, the decision recognises that, since there is a public interest in disputes being settled without litigation where possible, a valid dominant purpose should sensibly be taken to include the purpose of settling or avoiding litigation, not only preparing for it. 

Privilege challenges will not disappear. New battlegrounds may have opened up as a result of this judgment – for example in cases where the potential prosecutions in question are under statutes other than the Bribery Act, or where prosecutors or regulators are believed to take an approach which is materially different to that of the SFO. 

As to legal advice privilege, the Court of Appeal has set out what it takes to be the practical and principled approach for today’s commercial world. It is unclear whether there will be any appeal in this case, but a final and authoritative resolution of the difficulties presented by Three Rivers No 5 cannot be put off indefinitely. The day on which they may be resolved must surely have come a good deal closer.