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Litigation and its Privileges

Published on : August 2018
Author(s):Several

Litigation Privilege as Understood Through Cases

ENRC v SFO; Bilta v RBS and R v Jukes

The definition of Litigation privilege is non-disclosure protection imposed on documents which come into existence after litigation commenced or in contemplation of such litigation, or where their creation was in the view or such prosecution. These documents are either for obtaining advice as to such dispute, or of gathering evidence to be used in such litigation, or of receiving information which might lead to the securing of such evidence.

Litigation privilege explained

The concept of litigation privilege exists to protect parties to the litigation. Litigation privilege provides for parties to assess the merits and prepare its case without having to concern itself with the disclosure of those details to its opponent. Litigation privilege consists in documents, including communications, which are confidential and the production of which happens in situations where litigation is either in progress or where there is a reasonable prospect that it will happen, provided that the dispute is the dominant purpose for which the document's creation. Litigation privilege does not only take the form of attorney-client communication. Such right exists outside of such relationship concerning the producing of any records of discussions for the primary purpose of obtaining advice about litigation, obtaining or collecting evidence for the dispute, or obtaining information which may assist in the achievement of receiving such indication.

Confidentiality of privileged documents is essential for a material to be deemed exempt. However, secrecy alone will not confer any privilege – to use litigation privilege, litigation must be in happening, or there must be a reasonable prospect that it will happen.

The litigation process must be in progress to consider a document protected under litigation privilege. Alternatively, during the creation of the record, there must have been a reasonable prospect of litigation. In this regard, one must take caution when deciding when the dispute is in "reasonable prospect." It is commonly accepted that "reasonable prospect" means more than a mere eventuality, but not necessarily higher than 50%, and would usually comply if litigation is reasonably likely or even may happen.

The dominant purpose of the author at the time of creation of a document or communication must be to utilize it, or its contents to gain legal advice, or to conduct or assist in the conduct of litigation. It will not suffice that a document happens to be relevant to later dispute if it is apparent that, at the time of production, the material was commissioned for another reason, for example, a proposed business deal or a reflection of annual accounts.

Instructions to and reports produced by expert advisers, to confidentially advise on the merits of the case, are protected by litigation privilege. However, the instructions to expert witnesses for litigation are not protected by right if they are to be utilized in court, as this makes them a document in the public domain, and therefore they do not satiate the confidential aspect of litigation privilege.

The three-tier test to litigation privilege

This test for litigation privilege requires that:

  1. Litigation must be in progress or contemplation
  2. The making of the communications must have the sole or dominant purpose of conducting that litigation
  3. The dispute must be adversarial, not investigative or inquisitorial

Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd (ENRC) EWHC 1017 (QB)

In this case, a company claimed that documents produced by lawyers and forensic accountants during an internal investigation were privileged. The conducting of the internal research was due to allegations of bribery and corruption. The SFO challenged such claims successfully, and with such ruling, the suggestion that litigation privilege is going to be very difficult to claim concerning most internal investigation materials came to fruition.

Facts – ENRC received an email from an apparent whistleblower containing allegations of bribery and financial wrongdoing concerning one of its subsidies. This information led ENRC to instruct lawyers to carry out an internal fact-finding investigation. The SFO then became involved after it contacted ENRC, drew its attention to the SFO's self-reporting guidelines and suggested a meeting. This inquiry led to a lengthy period of dialog concerning which ENRC shared with the SFO the outcomes of such internal investigation, and the SFO announced that it was launching a criminal investigation sometime later. In pursuance of its investigation, the SFO sought the production of a range of documents, some of which the ENRC claimed to be under the protection of legal privilege. The SFO commenced proceedings, requesting the creation of the papers on the basis that they were not privileged.

The ENRC argued that litigation privilege protection extended to the Interview Notes, Accountants' Reports and Factual Updates on the determination that their dominant purpose was to enable ENRC to obtain advice or evidence in connection with anticipated adversarial criminal litigation.

In the courts' judgment, it held that there was no litigation privilege accorded to those documents. ENRC was unable to establish on the facts that it had any knowledge of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility.

The court stated that an SFO investigation is a preliminary step taken, and generally contemplated before any decision to prosecute is taken. In practice, this means that utilizing a claim to privilege is possible only when made where prosecution is reasonably foreseeable. The judge held that ENRC did not contemplate a trial when producing the documents in question, ultimately those documents were not protected by litigation privilege.

In SFO v ENRC it was held further that litigation privilege was not applicable to material and documentation prepared for the dominant purpose of: -

  1.  A criminal investigation; or
  2. Avoiding prosecution

The court also rules that, even if a prosecution had been reasonably thought to occur, none of the created documents in question were done so with the dominant purpose of being utilized in the conduct of such litigation. There was insufficient evidence to present to corroborate that the target of the internal investigation had involvement with the conduct of future criminal proceedings if proof of criminal behavior came about and attempted to convince the SFO to engage in a civil settlement failed. 

Impact of ENRC privilege ruling

This judgment does not mean that parties can no longer obtain legal advice in the context of an internal investigation – the protection of communications between a lawyer and a client for legal information continues. However, the combination of the judge's confirmation that fact-finding communications between a lawyer and anyone other than the actual client are not privileged. Along with her rulings on when litigation is stated to be in contemplation from a criminal perspective, this makes it difficult for parties or their lawyers to claim privilege over factual inquiries according to which the giving of advice is allowed.

The judge's decision means the taking of particular care over communications involving "third-parties," including individuals within a client organization who are not authorized to seek or obtain legal advice, in circumstances where an investigation is done to establish the substantiation of allegations.

The judge's observations about the difference between criminal proceedings and civil litigation suggest that this decision should not change the precedent of when the prosecution can be said to be in contemplation in ordinary civil actions. But it does signify that litigation privilege is going to be more tumultuous to claim in other criminal contexts. The judge's reasoning also appears to produce the somewhat incongruous result that a company threatened with civil proceedings concerning allegations of misconduct can investigate them protected by litigation privilege (provided that there is compliance with the dominant purpose test), but a company under criminal investigation for those same allegations cannot.

Bilta (UK) Ltd v Royal Bank of Scotland

In this case, the dispute was whether documents created in the course of an internal investigation conducted by the Royal Bank of Scotland could be considered protected under the scope of litigation privilege following allegations made by HMRC in correspondence of tax counsel fraud. In this case, unlike the case of SFO v ENRC, the court held that the Royal Bank of Scotland's claim to privilege was justified and that there was the protection of the documents under litigation privilege. This case has brought with it significant clarification of the law, especially in light of the confusion caused by the decision in SFO v ENRC.

In this case, the claimant accepted the fact that compilation of the documents in question occurred at a time when litigation was a possibility, and that the dispute was adversarial. Therefore, the issue before the court was whether the creation of the documents was for the sole purpose of conducting that litigation.

In this matter, the Royal Bank of Scotland was able to adduce proof of its lawyer's retainer letter from the beginning of the investigation. This letter referred to a "dispute" with HRMC together with internal emails and attendance notes; these noted the view of Royal Bank of Scotland’s personnel that litigation was not in prospect and that there was a need for the investigation.

The judge in Bilta (UK) Ltd v Royal Bank of Scotland found in his judgment several crucial factors which distinguished this case from the of SFO v ENRC, including:

  1. In the present case, HMRC wrote a letter to the Royal Bank of Scotland, which formed a turning point in their relations. Concerning this letter, HMRC stated that they had sufficient grounds to deny the tax relief in dispute. The Court held that even though this exchange was an interaction with authority, the communication did not equal the interactions with the Senior Fraud Office in ENRC. Instead, there should be a comparison between this letter and the letter before action in civil litigation.
  2. The Royal Bank of Scotland, in their response to the letter, instructed external specialist tax litigation counsel. This instruction suggests that they had an idea that they might need to defend a claim in this regard;
  3. The Court here cited Re Highgrade Traders [1984] BCLC 151 – in this case, the Court held that a document could be prepared under the pretenses of litigation even if the circumstances for such preparation were to enable a client to receive advice on whether or not to prosecute. 

This case provides several practical lessons for companies conducting an internal investigation:

  1. Companies should consider the purpose of a document in the context of the specific facts of the case, even if that case involves a study by a competent authority.
  2. Companies must determine the purpose of creating materials which might not be covered by litigation privilege. Companies should emphasize the consideration of whether or not the documents they are producing have the dominant purpose of litigation. If there is a chance that the records generated have insufficient protection under litigation privilege, companies should determine the advantages and disadvantages of creating potentially disclosable documents.
  3. Consider at an early stage whether asserting the right of litigation privilege over the records in worthwhile;

R v Jukes

The facts of this case are that the appellant, Paul Jukes, was a managerial employee at a waste and recycling company where another employee was fatally injured. During an investigation by the employer's lawyers, Mr. Jukes made and signed a statement in which he stated he had responsibility for health and safety on site.

When the competent authority and the police interviewed him, he denied responsibility for health and safety. At trial, the prosecution relied on his earlier statement and ultimately, he was convicted and sentenced to a term of imprisonment. On appeal the question of whether his more previous statement constituted an account protected by litigation privilege arose.

The Court applied the three-tier test for determining litigation privilege and followed the approached used in SFO v ENRC – to which the Court held that litigation privilege did not apply to the earlier statement made by Mr. Jukes.

The Court considered the following factors relevant to its finding:

  1. When making the initial statement, no member of the company knew that an investigation would ensue. The judge in this respect agreed with the judge in SFO v ENRC that there cannot be a reasonable contemplation of criminal proceedings. This assumption is unless the prospective defendant knew enough about what the investigation is likely to unearth, or has discovered, to understand that it is realistic to think that a prosecutor to be satisfied that it has sufficient material to be stood in good stead for securing a conviction.
  2. The competent authority interviewed Mr. Jukes 16 months after his earlier statement, and at the time of such an interview had not decided to prosecute. Furthermore, there was insufficient evidence to support that either Mr. Jukes of the Company had sufficient knowledge to understand that it was realistic to expect the HSE to be satisfied that it had enough material to secure appropriate convictions.
  3. Criminal proceedings have a more significant cusp for the contemplation of legal proceedings than civil actions. To quote Judge Andrews in SFO v ENRC: A person might have reasonable grounds to think that they are going to be in a civil suit at the hands of a disgruntled neighbor. Or a civil suit at the hands of a commercial competitor, even where there is no apparent cause of action, or where the evidence is still undiscovered that would make a claim.  Criminal proceedings, in the alternative, cannot be initiated unless and until the prosecutor is satisfied that there is enough evidential basis for prosecution and that the evidence satisfies the public interest test.

Conclusion

It is possible for documents created in an internal regulatory investigation to be covered by legal professional privilege if there is the establishment of the requirements of litigation privilege. In this regard, litigation must have commenced or is a reasonable prospect, the dominant purpose of the investigation is the litigation, and the said litigation is adversarial. In determining whether litigation privilege protects an investigation, the presiding officer will look at the circumstances at the outset of the dispute. In this instance, the court will consider what triggered the investigation and the events which lead to it. For example, in the Bilta case, the Royal Bank of Scotland was able to use the letter from HMRC as a turning point and that all that followed was a reaction to the pending litigation. Clients are instructed to take notice of the circumstances that bring about the investigation.

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