Keeping communications privileged – a recent decision

When an accident happens on a ship or a drilling rig, multiple parties with potentially competing interests will want to conduct an investigation for a variety of different reasons; the Owners, the Charterers, the flag state and various authorities, amongst others.

On such occasions, lawyers will typically become engaged and there will be much discussion in relation to "privilege" - a legal principle which allows parties to seek legal advice and assistance without fear that these communications will be disclosed to third parties. In this article, Bruce Craig and Alan Sheeley of Pinsent Masons look at an important recent decision of the English Court of Appeal on the tricky issue of Legal Privilege, and Lewis McDonald of Skuld Offshore offers some thoughts from a P&I perspective.

Legal professional privilege(1) is a fundamental principle of the legal systems in the UK and many other jurisdictions. It enables individuals and organisations to seek legal advice and assistance in the confidence that their communications are protected from disclosure to third parties, encouraging them to be candid in doing so. A recent decision of the English Court of Appeal updates and seeks to clarify the law in this notoriously difficult area.

Recently the law has been in flux, particularly in relation to the application of privilege to material produced during corporate internal investigations. Such investigations are a critical risk management tool for businesses, particularly given the growing importance of self-reporting in the regulatory landscape.  

The 2017 decision of the English High Court in SFO v ENRC ("ENRC") ([2017] EWHC 1017) was met with dismay. Businesses felt unduly curtailed in their ability to conduct internal investigations without having to hand over created documentation to regulators or law enforcement agencies. 

The Court of Appeal handed down its much-anticipated judgment in ENRC, overturning the original decision and addressing many of its controversial features. However, there remain important lessons for conducting internal investigations to maximise the chances of privilege applying. These are of as much relevance to accidents in the offshore and shipping industries as they are the corruption allegations in the mining industry from which this decision emerged.

Global mining group ENRC carried out an internal investigation following a whistleblower's allegations of corruption. The Serious Fraud Office (SFO) became involved, ultimately began a criminal investigation and sought disclosure of documents generated during ENRC's investigation. Key documents included notes of employee interviews conducted by ENRC's lawyers, and documents produced during a review by forensic accountants. ENRC contended that these documents attracted legal professional privilege arguing that both the interview notes and accountants' documents attracted litigation privilege, one of two forms of legal professional privilege, as they were prepared for the sole or dominant purpose of adversarial litigation (SFO criminal litigation) which was, at the time, in "reasonable contemplation", the test set out in Three Rivers No.6 [2004] UKHL 48.

The High Court disagreed holding that an SFO investigation was not "adversarial", and that at the time of the documents' creation an SFO prosecution, which was adversarial, was only a possibility, and not in "reasonable contemplation". It also held that: litigation was not the investigation's dominant purpose, but was instead for fact-finding, regulatory and compliance purposes; ENRC's attempts to persuade the SFO not to commence proceedings were not (unlike defending litigation) a litigation purpose; and, ENRC had intended to share the products of its investigation with the SFO, and that in such circumstances privilege could not apply.

ENRC also contended the interview notes attracted the second form of legal professional privilege, legal advice privilege. This applies to confidential communications between lawyer and "client" for the purpose of giving or receiving legal advice. Despite authority that only individuals specifically authorised to seek and receive legal advice on behalf of a corporate are the "client", ENRC argued that such privilege should also apply to communications whereby other employees provide the corporate's lawyers with factual information needed to advise the corporate. The High Court rejected this, considering itself bound by authority.

In a welcome judgment, the Court of Appeal reversed the High Court’s decision on litigation privilege, holding that the interview notes and accountants' documents (amongst others) were indeed prepared for the dominant purpose of reasonably contemplated adversarial litigation. 

The Court of Appeal's approach here is much more commercial and reflects the approach as generally understood before the earlier judgment. For example, in finding that litigation was reasonably contemplated by ENRC, the Court looked at the evidence holistically, observing that the "whole sub-text" of the relationship was that if the matter could not be resolved, prosecution may follow. It did not necessarily matter if the investigation was only at an early stage. Similarly, in finding that litigation was the investigation's dominant purpose, the Court appreciated that an investigation may have multiple purposes, but that this does not necessarily preclude litigation being the dominant one.

Consistently with practical reality for those facing a dispute, the Court also reversed the High Court’s controversial distinction between avoiding and defending litigation, recognising that both are litigation purposes.

Also positive is the Court's approach to the relevance of regulator dialogue and self-reporting, observing that despite a document, such as a report or letter, being prepared with the ultimate intention of providing it to an opponent this does not automatically deprive the preparatory work of litigation privilege. The Court recognised the public interest in enabling businesses to investigate effectively before making decisions about self-reporting.

The appeal on legal advice privilege, however, failed. While the Court agreed in principle that the current definition of the "client" is too narrow, it too considered itself bound by authority. Whether the Supreme Court will have an opportunity to revisit this point remains to be seen but present legal advice privilege remains of limited application to internal investigations.

Although the Court's decision is a positive development, there is no room for businesses conducting internal investigations to be complacent. Decisions in this area are notoriously fact-sensitive and businesses should expect assertions of privilege to be closely scrutinised. If an assured is involved in an incident which has the prospect of adversarial litigation arising from it, such as a collision, pollution incident or fatal accident, it is extremely important that you contact Skuld as soon as possible. We will then be able to assist with putting in place the necessary personnel and procedures to properly protect you, including specialist, experienced lawyers, and necessary experts and external support.  

By way of general advice, it remains key to any claim for litigation privilege that there is good quality, contemporaneous evidence to show both that litigation was reasonably contemplated at the time of any investigation and that this was the sole or dominant purpose of the documents in issue. Investigations must not be undertaken in a vacuum. Those investigating need to be clear as to the purpose and set this out in writing both at the outset and throughout, and if there are multiple objectives, but litigation is the dominant or overarching one, this should be made clear, giving appropriate detail as to the potential issues and parties involved in the contemplated litigation.

Dialogue with regulators and law enforcement is also an area where extra care is needed. This is particularly the case in offshore or shipping incidents where there may be a number of different regulators or authorities with over-lapping remits but distinct agendas. A cooperative approach may be vital, and the Court of Appeal's judgment confirms this can be consistent with an assertion of privilege. However, awareness and careful management of the terms of such cooperation remain critical if litigation privilege is to attach and not be inadvertently waived.

If you would like further information in relation to how Skuld can assist in the event of a serious incident, please get in touch with your Skuld team.