At common law there exists a fundamental right, known as legal advice privilege, for communications and documents exchanged between a client and lawyer for the purpose of seeking or giving legal advice to remain undisclosed. A further right, known as litigation privilege, prevents disclosure of communications and documents between a client and lawyer, or the lawyer and a third party, used for litigation.
Over the previous 14 years, English & Welsh courts have constrained their application of the legal advice privilege and litigation privilege, including documents and communications. In turn, lawyers carrying out internal compliance review for corporate clients are left on thin ice where the documented findings of internal review become vulnerable to disclosure requests by regulatory bodies or adverse litigants. Three recent court decisions are instructive as to what lawyers and their corporate clients have to avoid, specifically, where large-scale interactions between employees and investigators produce documentary evidence that is sought to be disclosed in subsequent proceedings.
Legal Advice and the Corporate Client
As legal advice privilege protects interaction between a client and their lawyer, the critical question is to whom the privilege extends.
The long-standing authority for the extension of privilege in England & Wales is the 2005 Court of Appeal case of Three Rivers (No 5). Here, the Court held that the term “client” only extended to managing members of a corporate entity who were seeking legal advice, and not employees of the company generally.
Two 2016 cases have developed upon the Court of Appeal decision in Three Rivers, the first being Astex Therapeutics v AstraZeneca AB [2016] and the second being The RBS Rights Issues Litigation [2016]. Both cases concerned large-scale investigations carried out as part of an internal review, comprising of interviews with employees of each respective company. In Astex, the employee interview notes were accumulated prior to the commencement of the litigation process. The court applied the narrow rule in Three Rivers to hold that, as the lawyers were not extracting information from clients, rather, the wider employee group, the privilege did not apply. Likewise, in RBS the Royal Bank of Scotland carried out two internal investigations, involving internal and external lawyers, in the wake of its 2008 share collapse. One of the investigations, again comprising of large-scale employee interviews, was instigated pursuant to a US Securities and Exchange Commission (SEC) subpoena with regards its 2008 conduct. RBS’s shareholders subsequently brought a claim to recover losses and moved to have the interviews disclosed.
RBS’s defence was that its employees were “emanations” of the corporate entity, and that the interview notes were protected as working documents that divulged the lawyers’ advice to their client. The court disagreed, finding itself bound by Three Rivers, to the effect that employees at large could not be considered to be managing members as the entity’s “directing mind and will”. The court also drew a careful distinction between interview transcripts taken by lawyers, which did not allude to their strategy as per the present case, and those that did. The effect of the ruling was to further narrow the position under English & Welsh law adopted in Three Rivers, despite the likelihood that the same documents would have been protected by privilege under US law, an argument further advanced by RBS but ultimately rejected.
The court concluded that in all cases disclosure would be heavily favoured, unless “compelling grounds” existed for a contrary ruling.
Litigation Privilege and Dominant Purpose
The applicability of litigation privilege turns primarily on the dominant purpose test. This test provides that even if litigation is anticipated, the document in question must have been created with the dominant purpose of litigation. It is not sufficient for litigation to be a dual or equal purpose, but the Court of Appeal has accepted the notion of a “single over-arching purpose” of litigation.
In the 2017 case of Director of Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2017], the High Court adopted a strict interpretation of the rule. In this case, ENRC entered into internal review under the guidance of the Serious Fraud Office (SFO) as a result of whistleblowing allegations of financial misconduct. The internal review consisted of large-scale employee interviews. The SFO launched a criminal investigation in 2013, upon which the Director of the SFO sought disclosure of the interviews.
ENRC’s defence was that, as the interviews were conducted in anticipation of criminal proceedings being potentially brought, they satisfied the dominant purpose test. The High Court rejected this argument, instead finding that, in the first instance, there existed insufficient likelihood of criminal prosecution to grant protection, as proceedings were at only at the investigation stage. Secondly, the dominant purpose of accumulating documents cannot be to avoid litigation. The court held ENRC had conducted the investigation in contemplation of entering civil settlement with the SFO upon full disclosure of the interview contents. As a result, the privilege would not apply.
E-Disclosure under the UK’s Civil Procedure Rules
The disclosure process can take up to 30% of the costs of litigation. In 2013, amendments to the UK’s Civil Procedure Rules placed strong emphasis on cost management and budgeting throughout the course of proceedings. Under the CPR, parties to litigation are required to disclose electronic documents on par with physical ones, however, the Rules emplace a balancing test for the former based on: (1) the volume sought to be retrieved; (2) the complexity of the case; (3) the expense in retrieving data; and (4) the essentiality of the document to the case.
Conclusion
The cumulative effect of the above decisions is to oblige lawyers and clients to very carefully navigate their internal review proceedings to avoid harmful disclosure orders at a later date. A further effect of the dominant purpose test is to potentially detract a party from seeking settlement, lest they be held excluded from litigation privilege.
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