Privilege in regulatory investigations: UK Court of Appeal supports a broad approach

Friday 14 September 2018

Authors: Sophie East and Richard Massey

​​​Last week, the UK Court of Appeal released its much-anticipated judgment in ENRC v SFO1, a decision with significant implications for the scope of legal professional privilege in the context of regulatory investigations.

The judgment adopts a flexible approach to privilege, and is likely to inform (and possibly broaden) the New Zealand courts’ approach to assertions of privilege over documents sought by regulators.

Background

In 2010, global mining group Eurasian Natural Resources Corporation Limited (“ENRC”) was notified of various corruption allegations by a whistle-blower within a Kazakh subsidiary. In 2011, it appointed external lawyers (Dechert) to investigate, to interview ENRC staff about the matter, and to prepare a report.

Dechert’s report was finalised in 2013 and submitted to the UK Serious Fraud Office (“SFO”), who had approached ENRC following media reports about the alleged wrongdoing in 2011. Shortly afterwards, the SFO announced a criminal investigation and issued statutory notices seeking various documents, including Dechert’s notes of interviews with staff. ENRC withheld those notes and other documents on the grounds of privilege, which was duly challenged by the SFO.

The High Court heard that challenge last year.2 At issue was whether the disputed categories of documents attracted: 

  1. litigation privilege, i.e. whether they were prepared for the dominant purpose of preparing for an apprehended proceeding; or 

  2. legal advice privilege, i.e. whether they constituted communications with a lawyer for the purpose of giving or receiving legal advice.

The High Court judge ruled that litigation privilege did not apply to the relevant documents because ENRC had failed to show that it was aware of circumstances which rendered litigation a real likelihood. The judge found that an investigation by the SFO does not amount to 'adversarial litigation' and viewed it as merely the first stage in assessing whether further steps would be taken, such that litigation could not have been in reasonable contemplation. The judge also held that, in any event, the documents were not prepared for the dominant purpose of constructing a defence in future proceedings. 

The High Court also held that legal advice privilege did not apply. It referred to the seminal decision in Three Rivers (No. 5)3 as authority for the proposition that, where a lawyer communicates with their client’s employees or agents (as Dechert had done, for its factual investigation), that could only attract legal advice privilege if those employees or agents were specifically tasked with seeking and receiving advice on the corporation’s behalf. As the interviewees did not meet that test, the interview notes were not privileged and ENRC was required to provide them to the SFO.

Court of Appeal

The Court of Appeal disagreed with the High Court’s finding in respect of litigation privilege. On the basis of a careful analysis of the available documents, it found that “the whole sub-text” of the SFO’s enquiries of ENRC was the possibility of criminal prosecution if it did not achieve a civil settlement. 

Importantly, the Court also rejected a distinction the High Court had drawn between civil and criminal proceedings, noting:

“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 circumstances of any alleged offence.”

The Court commented only briefly on legal advice privilege (having already established that litigation privilege applied) although its comments are significant. The Court accepted that it was bound to follow the position in Three Rivers No. 5, i.e. that an employee or third party must specifically be tasked with seeking and receiving legal advice for privilege to apply.4 However, it expressed dissatisfaction with that approach, and stated “if it had been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so”.

In this regard, the Court observed that the narrow approach to legal advice privilege would disproportionately hinder large corporations and did not cater for “the modern world”.

The result is that, while the narrow approach to legal advice privilege – as opposed to litigation privilege – continues for now (at least until the issue can be determined by the Supreme Court), the judgment signals strong support for a widening of legal advice privilege to cover lawyers’ communications with those beyond a client’s “main board or those it appoints to seek and receive legal advice”. 

New Zealand takeaways

The Court’s comments in ENRC v SFO may influence the development of the law of privilege in New Zealand, as codified in the Evidence Act.5 The decision supports a flexible approach to litigation privilege, confirming that it can arise before a regulator has taken a formal decision to litigate6 and holding that it should arise equally readily in both civil and criminal contexts.

As for legal advice privilege, the decision supports the view that privilege should apply to communications with employees or agents, for example where lawyers assist in gathering facts from the business regarding a possible regulatory breach. This is helpful because, while the Evidence Act confirms that legal advice privilege extends to communications with a client’s “authorised representatives”,7 it is not yet clear how far that term stretches. Some cases have taken a narrow approach on the basis of earlier English authorities,8 requiring express authority to seek legal advice, while other cases suggest a more flexible view.9 In view of ENRC v SFO, it is expected that the courts will lean increasingly in favour of the latter.​

The decision will give comfort to businesses, although it remains important to consider carefully how to ensure documents stay protected in internal investigations. It is often helpful to involve external legal advisers early on, so they can assist in both the investigation itself and the review and development of appropriate safeguards.

If you would like to discuss the ENRC v SFO case’s potential relevance to you or your business, please contact the lawyers featured or your usual Bell Gully adviser​.​



1Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2018] EWCA Civ 2006.

2Serious Fraud Office v Eurasian Natural Resources Corp Ltd [2017] EWHC 1017 (QB).

3Three Rivers District Council and Others v Governor and Company of the Bank of England (No. 5) [2003] QB 1556.

4 Noting that the Supreme Court had previously declined to revisit the narrow approach (Three Rivers District Council and Others v. Governor and Company of the Bank of England (No. 6) [2004] UKHL 48).

5 The Evidence Act expressly provides that it may be interpreted having regard to the common law (section 10(c)).

6Commerce Commission v Caltex CL33-97.

7 Section 51(4) of the Evidence Act.

8 See Robert v Foxton Equities Ltd [2014] NZHC 726 where Kos J (citing Wheeler v Le Marchant (1881) 17 Ch D 675 – a decision which was central to Three Rivers No. 5) held that to be an authorised representative, or agent, for the purposes of privilege, an individual must be given authority to communicate with the solicitor to obtain legal advice and actually do so. In an agency context, his Honour indicated that the agent must be operating under an actual agency agreement that encompasses the acquisition of legal services on behalf of the principal. See also Aquaheat New Zealand Ltd v Hi Seat Ltd (in liq and rec) [2014] NZHC 1173 where Associate Judge Sargisson held that the interpretation of “authorised representative” in s 51(4) “should be as narrow as its principle necessitates​.”

9 E.g. Brandlines v Central Forklift HC WN CIV- 2008-485-2803, which was sympathetic to the view that a “less restrictive approach” applies in New Zealand – though also holding that an authorised representative “must have been authorised to assume – and must have assumed – the role of the client in communicating the information to the solicitor.”


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Sophie East

    Partner Auckland
  • Jenny Stevens

    Partner Wellington
  • Richard Massey

    Senior Associate Auckland
Related areas of expertise
  • Litigation and dispute resolution
  • Regulatory investigations and prosecutions