Legal privilege – why does it matter?
Legal professional privilege. Not a phrase that immediately fires up the imagination, and probably one that few non-lawyers come across in their day-to-day lives. In fact, it is also a principle that many lawyers do not fully understand – it is a difficult and complex area of law. Lyn Dario, Partner and Head of Environment and regulatory at Shulmans LLP, takes up the story.
Legal professional privilege is one of the most important protections for companies and individuals facing regulatory investigations, some of which can end with criminal proceedings being issued. Many regulators (including HSE) now have powers that are, in practical terms, capable of closing businesses, as well as leading to prison sentences and company director disqualification. Some are able to seek recovery of the proceeds of any crime committed, whether by a company or an individual.
Most businesses do not deliberately break the law, but many will still face some form of regulatory scrutiny and intervention. One of the key issues in an investigation is the creation and protection of information and documentation. The HSE can, under section 20 of the Health and Safety at Work Act 1974, compel people to produce information (including reports, e-mails, and even text messages) if the inspector believes it will assist their investigation. One of the key exemptions, however, is that information and documents subject to legal privilege are protected from disclosure and the HSE cannot demand that they are handed over.
So what is legal privilege, and what is protected by it?
The scope of legal privilege
First of all, it is unique to the legal profession. There are two types: legal advice privilege, and litigation privilege. In simple terms, legal advice privilege will protect confidential communications between a lawyer and their client, for the purpose of giving or receiving legal advice. So if there is a chain of e-mails between you and your lawyer, in which you have (for example) asked for advice about the legal implications of a particular event, and your response to it, that will normally attract legal advice privilege.
Litigation privilege protects confidential communications between the client, lawyer and third parties, where litigation has commenced or is in contemplation, and the communication is made for the “dominant purpose” of that litigation. By way of example, a company may have had to deal with an accident to an employee involving machinery. The company asks its lawyers to advise on whether there are any grounds for prosecution. The lawyer considers that there is insufficient information to enable them to advise the company, and then appoints an expert engineer to go to site, and look at the machinery in question, with a view to producing a report on whether there would be grounds for a regulator to prosecute. Such a report would, in principle, be protected by legal privilege.
Key to both limbs of privilege, however, is that the communications must be “confidential”. That does not mean that all confidential information is exempt from production to a regulator: it is not. Even highly sensitive material is disclosable, unless protected by one of the limbs of legal privilege.
In the case of litigation privilege, there are added requirements – first, litigation must already be underway, or at least be in contemplation. The Court of Appeal has very recently considered this question, and we summarise the key points below. The second element is that the communication for which a person seeks to claim privilege must have been prepared for the dominant purpose of litigation. Although there are inevitably grey areas, it will usually be a relatively straightforward question.
Finally, the litigation in contemplation must be adversarial – there are some legal fora that are not adversarial (a coroner’s inquest would be one such example). Potential criminal, or director disqualification, proceedings are, however, adversarial.
SFO v Eurasian Natural Resources Corporation Limited (“ENRC”)
In September, the Court of Appeal heard an appeal by ENRC against a decision in the High Court which had gone against them. The case involved an investigation by the Serious Fraud Office (“SFO”) following allegations of bribery made by a whiistleblower. The principles are of general application for all sorts of regulatory regimes where criminal sanctions are a possibility.
Once the allegations surfaced, ENRC had immediately engaged lawyers to investigate whether the whistleblower’s allegations had any merit. That investigation spanned several overseas jurisdictions, and eventually, forensic accountants were also engaged to assist with the investigation.
Discussions had been ongoing between ENRC, its lawyers, and the SFO, with a view to concluding whether ENRC could, in effect, report itself to the SFO, and so avoid potential criminal proceedings. It appears that the discussions went on for some time, and the SFO became frustrated at what it perceived as a lack of progress. It then took the decision to commence a criminal investigation, and sought disclosure of a range of documents, including notes taken by the lawyers of evidence given to them by ENRC’s employees and others during the course of the lawyers’ investigations. ENRC contended that these documents were legally privileged, and that the SFO had no entitlement to see them.
The Court of Appeal, in a lengthy judgment, concluded that ENRC was broadly correct. The Judges observed the following:
- Litigation was in contemplation as it was clear from an early stage that ENRC was bracing itself for a criminal investigation by the SFO;
- Legal advice given to head off, avoid, or settle proceedings is as much protected by privilege as advice on contesting the proceedings once they were on foot would be; and
- Even if a company investigates whistleblowing allegations so as to comply with its corporate governance obligations, the “dominant purpose” of documents created may still be the avoidance of litigation. It was suggested that ENRC had always intended to share some of the material prepared by its lawyers with the SFO, and so those documents would not be privileged. But the Court said that drafts of the reports and presentations prepared by the solicitors would still be privileged. They could be very different from the final version of anything that was actually shared with the SFO.
Some practical tips
Any decision on legal privilege will be fact-specific. However, there are steps that companies can take to ensure that they give themselves the best chance of claiming legal privilege to protect documents created during the course of an investigation:
- As privilege applies uniquely to relationships with lawyers, obtaining early legal advice is essential. Where there has been a serious accident or near-miss, such that an investigation is likely, and a criminal prosecution is a real possibility, your lawyer can assist with preparation of your root cause analysis;
- There are grey areas with in-house legal teams. There may be occasions when the advice they give to the company is regarded as being more commercial in nature than legal. In such a case, claiming privilege will be very difficult. The issue does not arise to the same extent with external lawyers;
- It is easier to contend for legal privilege where the senior management team seeks advice from its lawyers. In addition, e-mail distribution lists should be kept to the bare minimum. Otherwise, if the list of recipients of advice is too wide, there is a danger that the advice is no longer regarded as confidential, and privilege can accidentally be waived;
- It is better if your lawyer instructs experts to prepare reports for the company. That way, it is much easier to ensure they remain privileged;and
- Simply marking a document as legally privileged does not make it so – however, it is good practice to mark documents from the outset of an investigation as being “legally privileged and confidential”, if they are in effect being prepared to enable the company to obtain legal advice.
Finally, always be careful about what you commit to writing – e-mails and even text messages are potentially disclosable. Always imagine your lawyer is sitting by your side, and picture the look on their face before you press the send button!
Gary Lewis, Director at law firm Squire Patton Boggs, provided his views on what the ruling means for companies.
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