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Internal Investigations and Privilege - update

14 September 2018 | Australia
Legal Briefings – By Andrew Eastwood, Susannah Cogman, Dan Hudson and Mark Smyth

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The law of privilege is of particular importance in the present climate of intense regulatory and public scrutiny of corporate misconduct. Following significant corporate events or allegations of wrongdoing, companies often establish internal investigations to seek legal advice or in anticipation of litigation. One important issue is whether documents associated with such investigations are subject to legal professional privilege. Case law in the UK and Australia has highlighted difficulties with maintaining claims to privilege in internal investigations, although the recent UK Court of Appeal in ENRC v SFO1  ("ENRC") (see our case summary here) provides welcome clarification in certain regards.

Maintaining Privilege – challenges and how to address these

Companies have faced complexity in asserting claims to privilege in the context of internal investigations in four key areas. 

  1. The application of the dominant purpose test: Corporates have experienced difficulty establishing that documents for internal investigations have been prepared for the dominant purpose of legal advice or litigation. The position has improved in England by virtue of ENRC, which held, in short, that documents prepared for the purpose of settling or avoiding contemplated litigation were covered by litigation privilege, and that litigation can be in contemplation even before the full facts are established by the investigation. ENRC's interview notes with its former lawyers, compiled during an internal investigation prompted by a whistle-blower’s allegations, were therefore privileged, with the Court finding that "where there is a clear threat of a criminal investigation … the reason for the investigation of whistle-blower allegations must be brought into the zone where the dominant purpose may be to prevent or deal with litigation." However, the Court commented that this analysis may not apply to every internal investigation2, as it will always be a fact-sensitive judgment.

Further, in Australia and in England as regards legal advice or litigation privilege, the dominant purpose test remains difficult to establish evidentially if there are multiple plausible purposes (other than legal advice or litigation services) leading to the creation of the document3 or if there is a lack of "focused and specific evidence"4 regarding the circumstances in which it was created. Again, the position has been improved to some extent in England following ENRC, which recognised that a factual investigation is not necessarily distinct from an overall litigation  purpose. Nonetheless, depending on the jurisdiction, companies may wish to split investigations into a privileged and a non-privileged work stream in order to mitigate this risk, with the latter confined to technical facts and findings. Careful record keeping from the outset will also assist with meeting the high evidential requirement in the dominant purpose test, noting the purpose, work streams and key documents in any investigation.

  1. The scope of "the client": UK courts have restricted "the client" in the corporate context to a limited group of employees tasked with obtaining and receiving the relevant legal advice. Where litigation is not in contemplation, the application of this test in recent UK cases has meant that notes prepared by lawyers and employees of the company5 and records of interviews with (non-client) employees, even where conducted by lawyers6, have not been privileged. In ENRC the UK Court of Appeal, while showing appetite to change this position, considered itself bound by previous appellate authority. Companies can seek to address this risk to some extent through establishing from the outset a committee for the instruction of legal counsel and coordination of factual enquiries, clearly documenting this in an engagement letter and the investigation protocols. The question of how notes are prepared (e.g. whether they are a transcript, or whether they also reflect the note-taker's legal advice) can also be important.
  1. Waiver arising from the sharing of privileged documents with third parties: Sharing privileged documents with third parties may undermine a privilege claim. This is concerning given that regulators and law enforcement agencies are increasingly applying pressure on companies to disclose privileged documents as a necessary condition for cooperative arrangements or deferred prosecution agreements. Whether or not such disclosure will result in a general waiver will depend on the circumstances7. Companies should consider including strict limitations on both internal and external communication of documents subject to privilege claims. Any disclosures to third parties should be subject to limited waiver agreements.
  1. Navigating multi-jurisdictional investigations: Corporate investigations of multinationals frequently involve allegations of wrongdoing across a number of jurisdictions, and may involve multiple regulators. This requires companies to assess exposure and risk across borders while navigating the varied privilege rules of each affected jurisdiction. For example, civil law countries in both Europe and Asia do not recognise the concept of privilege, instead acknowledging a duty of confidentiality from lawyer to client in certain circumstances. Even among common law jurisdictions, the availability of privilege differs significantly: the Hong Kong courts have rejected the narrow conception of "the client" under English law, in favour of a more expansive alternative.8 US law similarly recognises a substantially wider interpretation of "client", and a less restrictive scope of "dominant purpose", than England.9 Conversely, some jurisdictions (such as the US) may not recognise the concept of limited waiver of privilege, creating risks if documents are disclosed on such a basis in another jurisdiction. 

It is therefore important that companies involved in cross-border investigations familiarise themselves with the rules of privilege in all potentially relevant jurisdictions. In civil law jurisdictions where privilege is not recognised, communications regarding sensitive topics will be even more vulnerable to disclosure to regulators and careful consideration will be needed to how such communications are managed and recorded.

Further Information

A more detailed analysis of privilege in internal investigations by the authors is available in the latest edition of the Australian Journal of Corporate Law.10 The comparative legal position on privilege in different jurisdictions is considered by Kyle Wombolt, Christine Cuthbert and Anita Phillips of Herbert Smith Freehills in the Global Investigations Review 2018, available for download here.

ENDNOTES

  1. SFO v ENRC [2018] EWCA Civ 2006
  2. See the Court of Appeal's judgement at 96 in ENRC: "we are not sure that every SFO manifestation of concern would properly be regarded as adversarial litigation".
  3. AusNet Electricity Services Pty Ltd v Liesfield [2014] VSC 474; Perry v Powercor [2011] VSC 308; Carter Holt Harvey Wood Products Australia Pty Ltd v Auspine Ltd [2008] VSCA 59; Kirby v Centro Properties (No 2) (2012) 87 ACSR 229; Sydney Airports Corporate v Singapore Airlines [2005] NSWCA 47; Esso Australia Resources Ltd v Commissioner of Taxation (1999) 201 CLR 49. 
  4. Barnes v Commissioner of Taxation (2007) 242 ALR 601, 605 [18];
  5. Astex Therapeutics v Astrazeneca [2016] EWHC 2759
  6. The RBS Rights Issue Litigation [2016] EWHC 3161; SFO v ENRC [2017] EWHC 1017
  7. Cantor v Audi Australia Pty Ltd [2016] FCA 1391
  8. Citic Pacific Ltd v Secretary for Justice (No. 2) [2015] HKEC 1263
  9. Upjohn Co v United States (1981) 449 US 383; In RE: Kellogg Brown & Root, Inc 756 F. 3d 754 (D.C. Cir. 2014)
  10. Andrew Eastwood and Mark Smyth, 'Internal Investigations and Privilege: A Response to Recent Challenges' (2018) 33 Australian Journal of Corporate Law 3.

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