Privilege in regulatory investigations: key takeaways from 2018 case law

Posted: 10/01/2019

2018 finished with a series of important privilege cases. We highlight the takeaways for regulated organisations that may conduct an internal investigation.

SFO v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006

Background: ENRC, with external counsel, conducted its own internal investigations into potential criminal activity. The SFO subsequently opened an investigation and requested various documents created during the internal investigation, including witness interview notes produced by external lawyers.

Decision: documents were covered by litigation privilege (reversing the widely criticised High Court decision):

Litigation privilege

• there is no higher threshold for claiming litigation privilege in criminal proceedings (than civil proceedings) – litigation needed to be in reasonable contemplation, and this threshold was met from at least the point ENRC engaged external lawyers to conduct internal investigations;
• litigation may be in contemplation, even if a party requires further investigation to confirm proceedings are likely;
• documents prepared for the purpose of taking legal advice on how to avoid or settle proceedings are covered by litigation privilege (not just documents prepared for defending such proceedings); and
• where a document is prepared with the intention of showing it to the investigatory body, that does not mean it cannot still be subject to litigation privilege (and in this instance, such privilege had not been waived by ENRC).

Legal advice privilege
The court declined to depart from established law that ‘legal advice privilege’ only applies narrowly to communications between a lawyer and those tasked specifically with seeking and receiving such advice (rather than all employees). This approach has been criticised as unsatisfactory for the practical realities of modern corporations, and it seems inevitable the Supreme Court will be asked to review this soon.

Sotheby’s v Mark Weiss Ltd [2018] EWHC 3179

However, the High Court’s judgment in Sotheby’s v Weiss dashed hopes the courts would take a more commercial approach to litigation privilege post-ENRC. 

Background: Mr Weiss applied to the court for inspection of letters between Sotheby’s and two art experts that discussed whether a painting was counterfeit. The letters were disclosed by Sotheby’s but withheld from inspection on the basis they were protected by litigation privilege. 

Decision: the correspondence was not covered by litigation privilege:

• the work carried out by the experts had a dual purpose: (i) to establish Sotheby’s contractual obligations to the buyer; and, (ii) to prepare Sotheby’s for possible litigation;
• neither purpose was of greater importance than the other to Sotheby’s at the time the documents were created; and
• the documents were not therefore created for the dominant purpose of litigation, as required.

WH Holding Ltd & Anor v E20 Stadium LLP [2018] EWCA Civ 2652

WH v E20 provides further evidence of the UK courts’ reluctance to embrace a broader test for litigation privilege post-ENRC.

Background: E20 claimed privilege over emails between board members and stakeholders because they were created for discussing a commercial proposal for settlement of anticipated litigation. 

Decision: the correspondence was not covered by litigation privilege:

Litigation privilege

• ENRC did not create a novel category of documents protected by litigation privilege covering documents prepared for ‘conducting litigation’ in a broader sense, nor did the decision remove the requirement that a communication must be concerned with obtaining advice or evidence; and
• while documents in which information or advice cannot be disentangled or which would otherwise reveal such information are covered by litigation privilege, there is no separate head of privilege covering purely internal communications.

Inspection
The court also rejected the – previously – generally accepted view that a court must be ‘reasonably certain’ that the test for privilege has been misapplied before it will look at the documents itself. Rather, the courts have general discretion to inspect documents to see whether the privilege test has been applied correctly.

Key considerations

While ENRC should be of some comfort:

• it has not extended the scope of litigation privilege beyond the recognised categories;
• courts remain cautious of creating an overly broad test for privilege, and will continue to scrutinise carefully claims that are not clear-cut; and
• determination of privilege claims – and in particular, litigation privilege claims – remains a fact-sensitive exercise.

In order to mitigate the risk that documents created during an internal investigation are not privileged – particularly where a regulator may request them – you should remember:

• it will be for you to demonstrate privilege applies;
• instruct external counsel early, to assist the investigation and advise on preserving privilege;
• limit the individuals involved, and ensure there is a carefully defined and controlled ‘client’ group involved in receiving and sharing legal advice; and
• if litigation privilege is considered to apply, record and maintain a clear documentary trail.

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