Falling Between Two Stools: LPP and Internal Investigations

by Amanda Pinto QC and Catherine Collins

Legal Professional Privilege (‘LPP’) in the context of internal investigations has reached a critical point following two recent cases. Earlier this year, the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (‘RBS Rights’) and The Director of the Serious Fraud Office v ENRC Ltd [2017] EWHC 1017 (QB) (‘ENRC’) highlighted the fine distinction between information sought in order to obtain or provide legal advice, and instructions given in order to obtain or provide legal advice. The current state of the law is that the former will not attract LPP protection whereas the latter will. Practitioners advising corporate clients face a tension between the incentive for organisations to self-report in an effort to avoid prosecution, and the current gulf between legal advice privilege and litigation privilege through which an internal investigation may be exposed to investigators.

Legal Advice and Litigation Privilege

Legal advice privilege can be broadly summarised as protecting a confidential communication between a lawyer and their client, where its dominant purpose is giving or seeking legal advice. Litigation privilege, on the other hand, protects communications between a lawyer and his client and also with third parties, once there is a reasonable prospect of litigation.

In the civil case RBS Rights, the claimants applied for disclosure of notes of interviews conducted with current and former employees in two internal investigations. The defendants claimed privilege. At the time of the interviews, litigation was not contemplated. The court rejected the defendants’ claim to privilege.

In ENRC, the company delivered a report in relation to its business to the SFO but asserted both litigation and legal advice privilege over the internal investigation. The Court held that:

“the reasonable contemplation of a criminal investigation does not necessarily equate to the reasonable contemplation of a prosecution. The investigation and the inception of a prosecution cannot be characterised as part and parcel of one continuous amorphous process…It is always possible that a prosecution might ensue, depending on what the investigation uncovers; but, unless the person who anticipates the investigation is aware of circumstances that, once discovered, make a prosecution likely, it cannot be established that, just because there is a real risk of an investigation, there is also a real risk of prosecution. The question whether the person anticipating a criminal investigation also contemplates that prosecution is likely (though not more likely than not) to follow the investigation, rather than just possible, must therefore be considered on a case by case basis.” §154

Providing more general guidance on the issue, the Court articulated the test and evidential threshold for a claim of litigation privilege:

“Adopting the test in USA v Philip Morris, ENRC must establish that, as at 19 August 2011, it was “aware of circumstances which rendered litigation between itself and the SFO a real likelihood rather than a mere possibility.” In my judgment, the claim for litigation privilege falls at the first hurdle because ENRC is unable to satisfy that test; but even if a prosecution had been reasonably in contemplation, the documents for which litigation privilege is claimed were not created with the dominant purpose of being used in the conduct of such litigation (which expression includes obtaining legal advice pertaining to the conduct of such litigation).” §149

Self-reporting

In order to benefit from self-reporting, the SFO guidance states that a company must be “genuinely proactive”, which includes disclosing the details of any internal investigation. The SFO has said this does not necessarily include a waiver of privilege. How does litigation privilege, as currently restricted, fit in with the SFO’s self-reporting guidance?

It is the perceived likelihood of a prosecution - rather than a criminal investigation or a dawn raid - that is necessary for a claim of litigation privilege over an internal investigation to succeed. In ENRC the Court held that, for litigation privilege to attach, the dominant purpose of the document in question had to be deployment in, or obtaining legal advice relating to, the conduct of anticipated criminal proceedings.  The practical consequences are troubling: if despite a self-report, the SFO decides to prosecute, an equally dominant purpose of the internal investigation is the preparation of the defence case. As matters stand, those conducting an internal investigation risk that litigation privilege will not necessarily protect all internal enquiries. There is now a real dilemma between seeking to avoid prosecution (by self-reporting) and providing the SFO with the evidence to prosecute the company (by self-reporting).  

Legal advice privilege offers equally scant protection for internal investigations. Legal advice privilege was defined as “not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context” (see Balabel v Air India [1988] Ch 317). But, following Three Rivers District Council v Governor and Company of the Bank of England [2004] UKHL 48 (‘Three Rivers (No 5)’) it does not extend to material which arises from advice being sought and which is relayed back to the legal advisor for further advice.

Identifying the client for LPP

Three Rivers (No 5) established a very narrow approach to LPP but the broad principles it decided were based on most unusual facts: an independent vehicle (the BIU) was specifically set up to provide a bridge between the Bank of England’s employees and its lawyers. No one other than the BIU, was authorised to communicate with the Bank’s lawyers. Because authorisation to communicate is required for LPP to attach, it followed that communications between the BIU and the Bank’s lawyers were properly subject to LPP; but, the Court held, that materials prepared by the Bank’s employees, for the dominant purpose of being shown to its lawyers were not. It held that material prepared by employees for a client’s lawyer, at the request of that lawyer and subsequently sent to that lawyer, were preparatory materials and did not attract legal advice privilege. So, the question is, who is the ‘client’?

A company can only communicate by its human agents. Currently, for the purposes of obtaining legal advice, the agent of the company must be authorised ‘to stand in the shoes of the client’. Frequently, a directing mind of the company will be the person communicating for the company, but this is not necessarily so for the purposes of seeking legal advice, for example, where the investigation relates to matters outside the knowledge of the directing mind. Where there a person is authorised to communicate with lawyers, but he/she cannot be said to be ‘standing in the shoes of the client’, legal advice privilege may not attach to their communications. There is a real risk that the information gathered or requested will fall outside LPP and within preparatory materials. Legal advice privilege will not attach in the absence of such authorisation even if the corporation’s lawyers are directly involved in gathering the information; moreover, in an internal investigation, with no civil action in sight, neither will litigation privilege. Since RBS Rights and ENRC, advisors must consider how the company’s authorisation to get legal advice can best be structured, to protect the client’s LPP. 

In an internal investigation, it is unlikely that notes and records of information provided to lawyers by unauthorised employees will fall within the narrow confines of legal advice privilege. In respect of lawyers’ working papers, both RBS Rights and ENRC impose a high threshold before privilege will apply. For example, privilege will not attach to a lawyer’s simple note of a meeting or record of an interview; there must be analysis or queries within the notes which demonstrate legal input on the material (per Upjohn Co et al v United States et al in the Supreme Court of the United States (1981) 449 U.S. 383, referred to in RBS Rights). Whether a privilege claim will succeed is a matter of evidence. The evidence must show something of the lawyer’s analysis of the documents and the purposes for which the ‘working papers’ were created.

As matters stand, the courts construe LPP in internal investigations very narrowly, with unwelcome consequences for companies. Clarity is required as to who precisely falls within the class of persons authorised to give instructions, be it by board resolution or otherwise. There will be circumstances where those who should be authorised to give instructions as the client will expand or change as matters develop.

The dominant purpose

Having identified the client, the purpose of the exercise must also be determined. If it is for the dominant purpose of mounting a defence to proceedings it will attract LPP protection, whereas if the dominant purpose relates to a criminal investigation, it will not.  With that in mind, recording the purpose(s) of an internal investigation may assist a claim to LPP; documents created as part of an effort to build a defence in the event of criminal proceedings are more likely to attract LPP than those which are created to dissuade the instigation of proceedings. In real life, matters are rarely so clear-cut.

LPP is fundamentally intended to protect not just clients but the proper operation of law. A gulf currently exists into which internal investigations will often fall, denying protection to clients seeking open and appropriate legal advice and undermining the public interest afforded by LPP. ENRC and RBS Rights emphasise that it is vital to identify who the ‘client’ is at the outset of an investigation and to keep it under review as it continues. Until the court defines the parameters of who the ‘client’ can be, practitioners are left with the problems posed by Three Rivers (No 5). If an effective internal investigation following potential corporate wrong-doing is to be encouraged, the boundaries of LPP must be properly set.

Amanda Pinto QC

 Catherine Collins

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