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On May 9 2017, the High Court ruled in favour of the Serious Fraud Office (“SFO“), finding that certain categories of documents produced by Eurasian Natural Resources Corporation Ltd (“ENRC“) during an internal investigation were not covered by litigation privilege (SFO v ENRC [2017] WLR(D) 317). The Judge’s reasoning was that a criminal investigation does not necessarily mean that a prosecution is reasonably in contemplation and she did not consider that a criminal investigation was sufficiently adversarial for litigation privilege to apply. This decision therefore casts doubt over the ability to rely on litigation privilege, even after a criminal investigation has been commenced or a Section 2 Notice has been issued (which allows the SFO to search premises or compel the production of documents or information).

Background

In 2011, ENRC began an internal investigation following whistle-blower allegations of fraud, bribery and corruption in Kazakhstan and an African country. ENRC began communicating regularly with the SFO from August 2011, which led to the SFO launching its own criminal investigation in April 2013.

As part of its investigation, the SFO exercised its powers under section 2(3) of the Criminal Justice Act 1987, compelling ENRC to produce documents relevant to the investigation. The SFO’s powers of compulsion do not extend to documents that are subject to litigation privilege, which ENRC claimed applied to certain categories of documents (the “Disputed Documents“).

Litigation privilege applies to communications made between parties, or their solicitors and third parties for the sole or dominant purpose of conducting existing or contemplated adversarial litigation. The Court therefore had to determine the extent to which litigation privilege applied to the Disputed Documents.

Decision

The Court held that litigation privilege did not apply to the Disputed Documents, as ENRC could not demonstrate that adversarial litigation was contemplated at the time that the documents were produced. The Court cited USA v Phillip Morris in its decision stating that for litigation privilege to apply, it fell on ENRC to establish that, as of the date it approached the SFO, it was “aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility“.

It is unclear from the judgment what steps the SFO had taken, and the extent of its investigation, at the point at which the Disputed Documents were created. However, the Court concluded that ENRC’s claim to litigation privilege failed as, although the SFO’s investigation was in reasonable contemplation, as a point of principle a criminal investigation by the SFO should not be treated as adversarial litigation. Andrews J stated that the investigation and inception of prosecution
could not “be characterised as part and parcel of one continuous amorphous process“. Furthermore, the Judge drew a distinction between civil proceedings and criminal prosecutions in that unmeritorious civil claims can be brought, whereas criminal proceedings cannot be commenced unless the prosecutor is satisfied that there is a realistic prospect of conviction on the evidence and the public interest test is met.

Significance

The implication of this case is that it may be more difficult for corporations to claim litigation privilege over documents produced as part of their internal investigations, even after a criminal investigation has been commenced or the SFO has sought to exercise its powers under Section 2. In order to rely on litigation privilege with respect to those documents, it will fall on the corporation in question to evidence that, at the time of the internal investigation, it genuinely
considered that a criminal prosecution was reasonably contemplated.

We understand that the judgment may be subject to appeal, however, in the meantime companies will need to consider carefully at the outset of any investigation whether and at what stage privilege is applicable, including whether a prosecution is reasonably in contemplation.

Author

Charles Thomson is a partner and solicitor advocate in Baker McKenzie’s Dispute Resolution Practice Group in London. He co-manages the Business Crime Unit, and is part of the Financial Institutions Disputes, Contentious Trusts and Compliance and Investigations Groups. Charles joined the Firm as a trainee in 2002, and concurrently spent three months on secondment as a judicial assistant at the Royal Courts of Justice in the Civil Appeals Division. A solicitor advocate since 2007, Charles appears as an advocate in all Higher Courts in England and Wales. Chambers and Legal 500 both commend Charles for his legal practice. Charles is also listed as a Rising Star in Litigation by Legal Week.

Author

Jennifer Revis is of counsel in the EU Competition and Trade Practice Group of Baker McKenzie's London office. She is acknowledged for her timely advice and responsiveness by the Legal 500. Jennifer has been on secondment to the UK customs authorities (Her Majesty's Revenue and Customs) in their tax and excise litigation department and to the Firm's European Law Centre in Brussels. Jennifer is frequently invited to speak at external conferences and regularly contributes articles to tax journals on customs matters such as De Voils Indirect Tax Journal.

Author

Sarah West is a partner in Baker McKenzie´s Dispute Resolution team, based in the London office. Her practice focuses on international disputes, including commercial litigation and arbitration. She is also well experience on the areas in public law such as consultations, defamation and judicial review, competition and regulatory investigations and litigation and as well as trust disputes.

Author

Alexander Findley is a trainee solicitor in Baker McKenzie´s Dispute Resolution team in the London office.