Getting it wrong
Let’s start with what can go wrong if you don’t obtain proper advice on privilege in an internal investigation, or fail to agree appropriate terms of reference with the authorities. The consequences can be significant.
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Privileged documents could be used by a prosecutor in criminal proceedings or as a springboard for further investigations. If privileged material is provided to a prosecutor or a regulator without agreeing any restrictions on its use, it can be relied upon in criminal proceedings or disclosed to overseas authorities under mutual legal assistance arrangements. As noted by an SFO officer in the ENRC case, such material can also be used as a basis “to get further information in”, including through the use of the SFO's powers under sections 2 or 2A of the Criminal Justice Act 1987.
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Higher likelihood of disputes later on. The ENRC privilege dispute against the SFO which ended in the Court of Appeal in 2018 was all about whether documents generated during the internal investigation led by Mr Gerrard were protected by privilege. While ENRC ultimately won on this point in the Court of Appeal, this only came after years of costly litigation. On this issue, the Judge said that had Mr Gerrard agreed with the SFO “some early and clear protection on privilege… then that might have at least reduced the scope for the arguments which later arose and were then litigated”.
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Risk that the prosecutor will fail to have due regard to its duty to respect privilege. This is arguably what happened during an interview between the SFO and ENRC’s then-Global Head of Compliance, conducted under the SFO’s powers pursuant to s.2A of the Criminal Justice Act 1987. The Judge found that the SFO has a duty to protect the legal professional privilege and confidentiality of third parties, and that the SFO officer was “thoughtless” and “negligent” in asking questions and eliciting information relating to a number of privileged matters during the interview. While the Judge ultimately concluded that it would not have been “obvious” to the SFO officer that he had received privileged information, meaning he had not committed misfeasance in public office, would the officer have sought to elicit privileged information in the first place had clear boundaries been agreed between ENRC and the SFO? This is a cautionary tale: it cannot simply be assumed that prosecutors will take adequate steps to safeguard your right to privilege.
How to get it right
Get privilege advice at the outset of an investigation
In a 2017 judgment, following a claim brought by the SFO, the High Court found that documents generated during Mr Gerrard’s internal investigation were not protected by privilege, making a number of controversial findings which threatened to severely limit the application of privilege in internal investigations. In a landmark judgment, the Court of Appeal ultimately upheld ENRC’s claim to litigation privilege, finding that criminal proceedings against the company were reasonably in contemplation when it initiated its investigation.
One of the factors relied upon by the Court of Appeal in making that decision was advice given to ENRC that “both criminal and civil proceedings can be reasonably said to be in contemplation”. A party will have to choose whether it wants to waive privilege over such advice if its claim to privilege is challenged at a later stage, but it is critical that legal advice is sought at the outset of an investigation on this point.
Proceed with caution
However, the Court of Appeal judgment is no panacea for companies and their lawyers, who must still give careful consideration to whether litigation privilege applies in each case. Litigation privilege can only be asserted where civil or criminal proceedings are in reasonable contemplation. Much will depend on the facts of your investigation.
Whatever you conclude, you should proceed with caution and assume that litigation privilege may not apply, with the consequence that only “lawyer/client communications” may be protected by privilege. Following the Court of Appeal decision, the definition of “client” for this purpose still covers only those individuals authorised to seek and obtain legal advice on behalf of a company. Under the current law, therefore, it is important at the outset of any investigation to document who is authorised to seek or receive advice, and record any changes to the ‘client team’ over time.
(Though watch this space – in an appropriate case, the Court of Appeal suggested that the ambit of legal advice privilege could ultimately be “decided differently from the weight of existing opinion” by the Supreme Court.)
To make a successful privilege claim, the dominant purpose of a lawyer/client communication must be to give or obtain advice in a relevant legal context. The issue of what constitutes a “relevant legal context” arose in Mr Justice Waksman’s recent judgment: his view was that opinions about “legal rights and obligations” are privileged, but there must be “underlying legal fact or advice related information to attract the privilege in the first place”.
Where possible, therefore, be clear when you are seeking advice on legal rights and obligations, and keep such communications separate from communications about commercial matters, for example by starting a new email chain for each request for legal advice.
Get proper advice before engaging with the authorities
Proper advice should be obtained in relation to privilege both at the outset of an investigation and before engaging with a prosecutor or regulator. This is where Mr Gerrard fell short, with the Judge finding that “Mr Gerrard did not give any or any proper advice on the question of privilege”.
Remarkably, in cross-examination Mr Gerrard’s defence to this allegation was that ENRC was aware that “privilege was always likely to be lost” – thereby negating his duty to give proper advice on the subject.
As the Judge found, this was “no answer”:
“There can be no doubt that a solicitor, when dealing with the SFO on behalf of a client which involves the voluntary submission of information and perhaps documents has a duty, as part of the Core Duty [to act with the care and skill to be expected of a firm of solicitors with relevant expertise], to advise as to how privilege may be lost or how it may be protected. It is a fundamental point which arises where there is engagement with an authority like the SFO.”
The judgment makes clear that this duty to advise on privilege is “part and parcel” of the advice that should be given to clients before engaging with the authorities, including on matters such as whether it is advantageous to bring documents into the UK from overseas. Ultimately Mr Gerrard failed to do this too, giving “no advice of any structured kind… as to the advisability or otherwise of bringing documents into the jurisdiction”, further exacerbating the prejudice suffered by ENRC.
Set the boundaries
The Judge found that Mr Gerrard was negligent not to have “(i) given proper advice to ENRC about the possibility of protecting privilege with the SFO at an early stage and (ii) then considered possible approaches to the SFO and some form of agreement going forwards”. As part of this, Mr Gerrard should at least have considered “making a more general approach to the SFO at the outset on the status of the privileged information which might be communicated”.
A structured approach is vital.
Mr Gerrard was wrong when he said that engagement with the SFO meant that privilege was always likely to be lost. Eventually he did seek to agree terms of reference with the SFO, but the Judge found that this was “far too late” in the day, over a year after ENRC had first started engaging with the SFO.
The Judge noted that the need to approach the SFO on the subject of privilege was particularly important in the context of the ENRC investigation, where the approach adopted by Mr Gerrard was an “unstructured”, “running commentary” to the SFO.
These criticisms should be borne in mind by organisations at the outset of any internal investigation which could lead to a self-report.
Meaningful engagement on privilege is possible
The SFO’s current guidance on cooperation makes clear that it still takes a tough line on privilege. Organisations who co-operate with the SFO are expected to “promptly provide a schedule of documents withheld on the basis of privilege, including the basis for asserting privilege. If an organisation decides to assert legal privilege over relevant material… the SFO may challenge that assertion where it considers it necessary or appropriate to do so”. Organisations “will be expected to provide certification by independent counsel that the material in question is privileged”.
But there is scope for a more nuanced approach and for meaningful engagement with the SFO.
As the guidance notes, an organisation “will not be penalised by the SFO” for refusing to waive privilege. In the ENRC case, the Judge dismissed as “hopeless” the argument advanced by Dechert that any attempt to engage with the SFO on privilege could be viewed by the SFO as an indication that ENRC was not cooperating. This was not the view taken by the SFO when Mr Gerrard finally approached it to seek assurances in relation to privilege. Privilege is, after all, a fundamental right of any client.
Ultimately, as Airline Services Limited did when entering into a DPA in 2020, a corporate can take the benefits of a limited waiver of privilege over an investigation report, receiving a co-operation credit, whilst also not giving a wholesale waiver of privilege over work product generated in an investigation. This can’t happen if you don’t seek to agree ground rules with the prosecutor at the outset.
The ENRC litigation is a case study of what can go wrong on privilege during an investigation – both for companies and prosecutors. Heed the lessons and beware the consequences of a slapdash approach; you cannot simply assume that prosecutors will safeguard your fundamental right to privilege.
Authored by Edward Hickman, Reuben Vandercruyssen, and Alex Riposi
