Disclosure risks of litigation privilege
Companies will be reluctant to undertake internal investigations post-Eurasian, which is in nobody's interests, says David Golten
Legal privilege is a hot topic following last week's High Court ruling involving the Serious Fraud Office and mining group Eurasian Natural Resources Corporation and 2016's judgment in the RBS Rights Issue Litigation.
The decision of Mr Justice Hildyard in RBS focussed on the definition of 'client' in the context of legal advice privilege. He ruled that the 'client' for the purpose of legal advice privilege (i.e. that privilege which applies to communications between clients and their lawyers) only extends to those authorised by a company to obtain legal advice and not to others who might have information which the lawyers need to provide that advice.
Conversely, Mrs Justice Andrews held in the action brought by the SFO against ENRC that while a distinction could be drawn between those who sought the advice and those who provided the information for it, they were all the 'client' for the purpose of privilege.
The ENRC case went further, however, and required the disclosure of sensitive internally produced documents detailing dealings by ENRC. It was the first case in which the court has had to consider whether litigation privilege is engaged in a criminal or regulatory investigation involving the SFO.
'Privilege' is a rule of evidence which determines whether documents can be required to be disclosed in court proceedings. The usual rule is that all documents relevant to the case must be disclosed. Exceptions are made where the documents are subject to one of the forms of legal privilege. There are many types of privilege. They are all based on the public interest in allowing parties in legal activity to be able to have certain types of communication remain confidential, for example, the advice they receive from their lawyers.
The privilege claimed by ENRC is 'litigation privilege'. This type of privilege arises from the principle that a litigant should be free to conduct litigation, including to seek evidence, without being obliged to disclose the results to their opponents. For litigation privilege to apply, the documents in question must satisfy certain rules. In particular, they must be created for the dominant purpose of adversarial litigation which must be pending, reasonably contemplated, or existing.
The material in respect of which privilege was sought in this case was generated by ENRC during an internal investigation into allegations of corruption in sub-Saharan Africa. The SFO sought disclosure of this material as part of its investigations into the company over its activities in Kazakhstan and Africa. (While the SFO investigation into ENRC has been ongoing since 2013, it should be pointed out that ENRC denies it has committed any criminal offence and no individual has been charged.)
In the SFO's application for disclosure the judge ruled that most of the documents were not covered by litigation privilege because a criminal or regulatory investigation is not the same as adversarial litigation and that while a criminal or regulatory investigation might well have been contemplated, there was no prospect of adversarial litigation at the time the documents were produced. The only exception to the ruling was advice given to ENRC's board by law firm Dechert in connection with the company's activities in Africa. The judge said that this advice was subject to the privilege which always exists between clients and their lawyers, namely legal advice privilege.
It has been reported that ENRC will appeal the High Court's decision. An appeal is to be welcomed. These decisions limit the scope and undermine the function of privilege. The purpose of legal advice privilege is to allow clients to place the full facts before their lawyers without fear that what they say will be revealed to others later. If the definition of 'client' is limited to those who will act on the advice received, companies will have limited ability to seek confidential advice. Similarly, with regard to litigation privilege, the approach adopted by the High Court impinges on companies' legitimate interests in gathering evidence from its employees and third-party experts.
Pending an appeal, a cautious approach to factual investigations will be required, recognising that there is at least a risk that disclosure could be required in future cases. Companies will therefore be reluctant to undertake internal investigations where they would otherwise do so. This would seem to be in nobody's interests.
David Golten is head of commercial litigation at Wedlake Bell