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03 Jun 2017

Misgivings and Leave to Appeal

The judgment of Andrews J in SFO v ENRC [2017] EWHC 1017 has attracted considerable interest and criticism. The Law Society has already publicly expressed misgivings and many if not most litigation lawyers believe that the Judge was wrong to hold as she did. ENRC has already announced it will seek leave to appeal from the Court of Appeal (the Judge having refused to grant it). Such leave will probably be granted later this term and the new Lord Chief Justice, to be appointed in July, will probably want to preside at the appeal. It is unlikely that it will occur before next summer. In part because the Law Society and several other legal associations will probably seek to intervene with written and/or oral submissions all critical of this judgment which will lengthen the hearing.

Unless and until this judgment is overturned it is binding. In the meantime a person served with a s2 notice by the SFO to produce documents which the judgment has held are not the subject of a valid LPP claim, must comply with it. It would not be a reasonable excuse to contend that as the judgment is subject to appeal and is controversial, compliance should be deferred until the Court has ruled. Accordingly it should be expected that law enforcement agencies who are vested with a statutory power analogous to the s2 one which the SFO enjoys will be actively flexing their enlarged powers. A raft of extant investigations are likely to be galvanised with a flurry of production notices issued during the period until the Court of Appeal’s judgment.

The judgment’s significance is principally regarding the scope of litigation privilege. In relation to legal advice privilege it follows and applies existing Court of Appeal authority (Three Rivers (No 5), decided in 2003) and therefore does not alter the common law in this aspect. The scope of legal advice privilege in circumstances akin to this case is an issue which for a long time has awaited determination by the Supreme Court. If this case reaches that final stage that will provide the opportunity for a review of the law on that species of privilege. This article only concerns the Judge’s finding as to when litigation privilege arises.

The situation with which the judgment is concerned can be briefly stated. The SFO via a s2 notice required ENRC to produce many documents which ENRC’s then lawyers and forensic accountants had created during the course of their internal investigation into suspected overseas bribery. For example, records of interviews with potential witnesses or explanatory financial schedules. This activity all occurred prior to the commencement of the SFO investigation. Indeed its rationale was to avert one. The SFO was willing to passively await the outcome or findings of this probe. But after having waited a considerable period for this news, not only did it resolve to investigate for itself, the SFO also made a bold and strategic decision. Expecting that ENRC would assert LPP in response to its s2 notice, the SFO considered that this was the moment to litigate this claim and thereby test the SFO Director’s long-held contention that lawyers acting for companies who have undertaken an investigation are habitually making far too wide and unjustified LPP claims over their records of work.

It would probably not be inaccurate or uncharitable to contend that the SFO opted to litigate only after it assessed that ENRC was especially vulnerable. It was unlikely to obtain any assistance from its erstwhile lawyers with whom it had fallen out. Evidence from them, likely to be treated by a court as the most credible, as to what was perceived to be the litigation risk attached to their investigation would thus be absent. Moreover the SFO would also have believed that evidence from those within ENRC who had commissioned and supervised the lawyers’ work was also unlikely to be available to assist ENRC’s resistance to the SFO’s LPP argument. Such was the rapid turnover of its management. This paucity of witness evidence meant that the SFO would be confident that ENRC would when engaged in forensic battle, have to defend its position with one arm behind its back. In the event, such SFO forecasting, if it occurred, was vindicated. The facts were the optimum from its perspective.

The judgment narrates the two self-reporting regimes which the SFO had established pursuant to which ENRC purported to co-operate with it. The Judge as a matter of principle accepted that a company can so co-operate whilst believing that despite this, it faces a substantial risk of being prosecuted (para 24). Nonetheless she held that litigation privilege does not attach to a document created for the purpose of avoiding prosecution (para 61). In her view it would be self-contradictory to hold that litigation privilege applies in this circumstance.

Secondly, again at the level of principle, the Judge held that an apprehension of a prosecution is not a sufficient state of mind to satisfy the common law’s condition that for the privilege to exist, possible litigation must be regarded as “reasonably in prospect”. If the threshold was as low as an apprehension or fear of litigation, fanciful speculation or a purely imaginary “worst case scenario” would suffice and the scope of the privilege would extend far too wide. She held that the privilege’s scope was narrower because the test was more onerous; ENRC would have to establish that whilst its lawyers’ investigation was in train, an SFO prosecution of it was regarded by it as a “real likelihood” (paras 122 and 149). Furthermore it would be a fallacy not to divorce investigation from prosecution. Neither a likely nor actual SFO investigation is necessarily sufficient; “the investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous exercise.” (Para 154). Unless ENRC reasonably believed (i.e. it knew about incriminating evidence which if the SFO also discovered it would be ample for it to launch a prosecution) its prosecution was a likelihood then the privilege does not attach (paras 155 and 160).

LPP is a legal concept devised and honed by the common law over centuries. The parameters of litigation privilege, and whether lawyer-third party communications should be within or outside its ambit, has always been incrementally determined by judges on a fact-specific basis. Many nineteenth century authorities concerned with the privilege’s frontier endure as demonstrated by Andrews J’s survey of the law. This ENRC judgment is within that tradition. Its novelty and its principal significance is that it seeks to determine the scope of litigation privilege in the context of putative criminal litigation.

In relation to the Judge’s first finding of principle – that it is a nonsense to hold that documents created predominantly for the purpose of avoiding criminal law litigation can qualify for litigation privilege – it is submitted that she is correct but in most situations this will not be important. In most situations there will be a substantial litigation risk from some quarter; maybe not from the SFO as per this case but nonetheless probably from a civil litigant be it a US or UK class-action or a more prosaic appearance before the Stratford employment tribunal by a disgruntled employee claiming victimisation. So even if there is no real risk of prosecution as the Judge found here, normally there will be a sufficient risk emanating from elsewhere to justify the privilege claim. The Judge herself appears to recognise this, noting that the privilege can arise where there is a threat of civil litigation “even where there is no properly arguable cause of action” (para 160).

In relation to the Judge’s second finding – that that an apprehension of a prosecution is not a sufficient state of mind to satisfy the common law’s condition that for the privilege to exist – it is submitted that the Judge has perceived the frontier of litigation privilege as it applies to the threat of prosecution too narrowly or tightly. In correctly identifying the distinction between a criminal investigation and a prosecution she appears to perceive this as a dichotomy, rather than distinct points on a continuum. This is mistaken. Her conceptual error is best demonstrated by applying its logic to the situation of an individual the subject of a police investigation. Her judgment means that prior to a suspect being notified that they shall be prosecuted, the privilege does not arise unless they correctly apprehend that the relevant public prosecutor either already has or is likely to assemble evidence against them amounting to a prima facie case. Or as the Judge puts it “enough material to stand a good chance of securing a conviction” (para 160). So notwithstanding their home being searched by a court-issued search warrant, having been arrested, having been interviewed under caution whilst held as a prisoner and finally released on police bail, this ordeal is probably insufficient to make a prosecution to be “reasonably in prospect”. Unless this suspect knows that they are guilty of the offence which they are being investigated for or are in that fortunate but atypical position that the police have made pre-charge disclosure which meets the Judge’s criterion quoted above, the protection afforded by the privilege does not yet vest. If this suspect who falls into neither category and, worried about their future liberty and reputation seeks to prevent their being prosecuted or to prepare their defence at a possible trial, contacts potential alibi witnesses and takes statements from them or engages experts, all of what results from these endeavours can be disgorged and could be used to help secure their conviction.

Most criminal lawyers, it is submitted, would regard that situation as remarkable and wrong. The correct line to draw is not where Andrews J would have it but a lower threshold which would trigger privilege as a consequence of the events narrated in the foregoing paragraph. This threshold would be the same as applies to another common law privilege, the privilege against self-incrimination. Like LPP it is represented in the case law of England and Wales as a principle of fundamental importance. It holds that a person is not compellable to provide information that could reasonably lead to, or increase the likelihood of, her or his prosecution for a criminal offence. The criterion is essentially a reasonable likelihood of prosecution. Therefore the possibility of prosecution is not sufficient and if, as the Judge found, this is how ENRC perceived the risk of it then her denial of litigation privilege is correct. But she is wrong to have set the bar so high to entail that in most instances the taking of steps for the intention of persuading a law enforcement agency not to prosecute, to avert this outcome, should not be equated with the conduct of a defence to criminal prosecution. Her concept of “litigation” as regards litigation privilege is wrong not to encompass activity occurring during the currency of and in response to a criminal investigation where the suspect is uncertain whether his or her adversary has yet assembled “enough material to stand a good chance of securing a conviction.” Usually only the guilty enjoy such an advantage and in most instances only they would possess the privilege. Such a perverse outcome cannot be right.

Pending the appeal lawyers acting for suspects in criminal investigations should ensure that if they create records concerning third party communications that either these or other contemporaneous documents explain why they were created. If this dossier fails to establish that litigation against the client was regarded as a reasonable likelihood and that the client was seeking their assistance pertaining to the conduct of potential litigation then they should expect to hear their records being read out in the Crown Court as evidence for the prosecution.

This article was originally published in Criminal Law & Justice Weekly and can be accessed here, behind a paywall. A shortened version was also published in Fraud Intelligence, behind a paywall.

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