Background facts

In the ENRC case the Serious Fraud Office (SFO) was investigating alleged bribery. It sought disclosure of certain documents and argued for a significant curtailment of LPP in relation to, in particular, litigation privilege.

The most important documents that the SFO sought disclosure of were notes of interviews between the company’s lawyers and employees, and materials generated as part of a ‘books and records’ review by forensic accountants. 

First instance decision

The judge at first instance, Geraldine Andrews J, agreed with the SFO. She made two key findings. First, in relation to legal advice privilege, since the 2003 decision in Three Rivers No. 5 the law was that employees of a company who were not empowered to instruct lawyers and receive their advice were not the lawyers’ clients but mere ‘third parties’. Thus, discussions with the company’s employees to ascertain the facts about a particular work event were not protected. Although many people felt, and still feel, that Three Rivers No.5 was wrongly decided, it was nevertheless binding on Andrews J and her decision on that ground was not surprising. 

Second, the Judge also found that litigation privilege did not apply either. She found that litigation was not reasonably in prospect when the interviews took place and forensic work was done. The SFO had commenced an investigation, but that was not the same as a criminal prosecution. 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 would be satisfied that there was a good chance of obtaining a conviction, which was not demonstrated here. This ruling was new law and highly controversial. 

The Judge also found that the ‘dominant purpose’ requirement was not satisfied. Again quite controversially, she held that avoiding litigation is not a good reason to invoke litigation privilege; and in this case it was clear that ENRC wanted to avoid litigation. It was also relevant that, in her view, ENRC had always intended to show the documents to the SFO as part of promised cooperation and, therefore, that LPP could not apply. 

Court of Appeal decision

A very senior Court of Appeal (the President of the Queen’s Bench Division, the Chancellor of the High Court and Lord Justice McCombe) was convened to consider the appeal, in which the Law Society also intervened and made submissions. 

The Court of Appeal was critical of the Judge’s approach to litigation privilege and the more controversial propositions on which important parts of her decision were based. 

Litigation privilege

It was relevant that prior to the creation of the documents ENRC was aware of whistleblower allegations, was told and appeared to accept that an SFO investigation was to be expected and had hired external lawyers and forensic accountants to investigate. The overall context was that criminal prosecution was possible. On the facts, the Court of Appeal found that prosecution (that is, litigation for these purposes) was in contemplation at the material times and that the documents were created for the dominant purpose of litigation. The Judge had been wrong to find that relevant materials had been promised to the SFO by ENRC – the evidence showed that ENRC had never expressly agreed to disclosure. 

The Court also made some very valuable statements of principle. Among the most important are:

• 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”. (This is a re-statement of the principle in the well-known USA v Philip Morris case of 2003.)
• There should be no distinction between contemplation of civil or criminal proceedings when considering litigation privilege: “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.”
• In criminal investigation cases, litigation might reasonably be contemplated prior to any contact with the police or government. Evidence that might demonstrate that such contemplation is reasonable, such as statements and actions of company executives or advice of external lawyers, cannot be ignored in determining this issue. Once the authorities are in contact and talking about possible prosecution the position is stronger again.
• The fact that the underlying facts are initially unclear to a client (such as a company) does not in itself prevent litigation from reasonably being in contemplation.
• Heading off, avoiding or settling proceedings is a proper purpose within the scope of litigation privilege, just as advice given for the purpose of resisting or defending such contemplated proceedings is within the scope. The Judge’s distinction between the two was wrong.
• In general, the court must take a realistic and commercial view of the facts when it comes to establishing dominant purpose. In another important statement of public policy, the Court held that it is “obviously in the public interest” that companies should not lose the benefit of LPP when investigating allegations of wrongdoing before going to a prosecutor. 

Legal advice privilege

The Court of Appeal’s view was that this case was primarily about litigation privilege. It appears to have accepted that the 2003 decision of the Court of Appeal in Three Rivers No. 5 (about most employees not being the ‘client’ as in relation to legal advice) tied its hands for this limb. 

However, quite unusually, the Court of Appeal made it very clear that it disagreed with Three Rivers No.5. The Court of Appeal does not overrule its own past judgments, that being the function of the Supreme Court. However, the Court of Appeal said that, if it were open to it to do so, it would have accepted the arguments that the Three Rivers view of the nature of clients was outdated, based on 19th-century authorities, which obviously did not take the modern corporate context into account. It said that the Three Rivers position disadvantaged large companies, which was not a principled outcome. It also noted that 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). 

Comment

This is an important ‘win’ for supporters of a commercial approach to LPP. The slaying of some of the more startling propositions of the first instance judgment in relation to litigation privilege is especially significant. Of course, cases always turn on individual facts, but the reality is that investigations and other work preparatory to potential criminal prosecutions can now take place with far greater confidence that LPP will be protected. 

On legal advice privilege, the signs are also encouraging. It was too much to hope that the Court of Appeal would just throw out the Three Rivers No. 5 judgment, but its very direct and principled criticism of that authority is an unexpected bonus for the many practitioners and academics who have been saying similar things over the years. At some point, whether in an appeal of this case or in another, the Supreme Court will have to grapple with legal advice privilege and the ‘client issue’. 

As members of this firm have often argued, an over-restrictive LPP regime actually harms the long-term interests of good governance and legality in commerce, as well as the rule of law. It is heartening that the Court of Appeal has recognised this and moved the law in the right direction. 

Note: Reed Smith represented its client The Law Society of England and Wales as an intervener in the Court of Appeal proceedings.

Client Briefing 2018-181