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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd [2017] EWHC 1017 (QB) (08 May 2017) URL: https://www.bailii.org/ew/cases/EWHC/QB/2017/1017.html Cite as: [2017] 2 Cr App R 24, [2018] Crim LR 63, [2017] EWHC 1017 (QB), [2017] 1 WLR 4205, [2017] WLR(D) 317, [2017] Lloyd's Rep FC 330 |
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
| THE DIRECTOR OF THE SERIOUS FRAUD OFFICE |
Claimant |
|
| - and - |
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EURASIAN NATURAL RESOURCES CORPORATION LTD |
Defendant |
____________________
(instructed by Eversheds Sutherland LLP) for the Claimant
Richard Lissack QC, Tamara Oppenheimer and Saaman Pourghadiri
(instructed by Signature Litigation LLP) for the Defendant
Hearing dates: 6, 7, 8 and 9 February 2017
____________________
Crown Copyright ©
Mrs Justice Andrews:
INTRODUCTION
nature,
although a scenario with certain similarities to the present was considered by Millett J in the case of Price Waterhouse (a firm) v BCCI Holdings (Luxembourg) SA and others [1992] BCLC 583. In that case, however, the documents were in the hands of a third party rather than a prospective defendant to criminal proceedings.
The Parties
natural
resources
sector. Until 14 January 2014 it was a publicly limited company. Between 2007 and 2013 it was a FTSE-100 listed company. Until 2009/2010 its principal operations, carried out through its wholly-owned subsidiary Sokolov-Sarbai Mining Production Association ("SSGPO") were in Kazakhstan. In 2009/2010 it sought to diversify its operations through a series of acquisitions of companies operating in various parts of Africa.
natural
resources
sector in general, are widely perceived as being high risk in terms of incidence of public sector bribery and corruption. As Gross LJ observed in R (Soma Oil and Gas Ltd) v Director of the Serious Fraud Office [2016] EWHC 2471 (Admin) [2017] Crim LR 65, at [4] - [5]:
"International business operates in challenging parts of the world, geographically, politically, commercially and in terms ofcorporate
governance. Those are the realities for a good part of the oil and gas industry…
Cognisant of those realities, Parliament has, however, prioritised combating corruption. By the Bribery Act 2010 ("the Bribery Act"), Parliament has legislated, with extra-territorial effect (s.12), making it an offence (under s.6) where a person (P) bribes a foreign public official (F) and P's intention is to influence F in his capacity as a foreign public official and obtain or retain business or an advantage in the conduct of business. S.7 of the Bribery Act provides that a commercial organisation may incur criminal liability if a person who performs services for it commits bribery on its behalf and the commercial organisation cannot prove that it had adopted adequate procedures that were designed to prevent such conduct. Both ss. 6 and 7 supplement the two main general offences of bribery under the Bribery Act, namely, bribery of another person (s.1) and being bribed (s.2)."
The self-reporting regime
Corporate
Prosecutions, which set out the policy governing the approach taken by the authorities when deciding whether to prosecute a
corporate
body for a criminal offence.
The 2009 Guidelines
corporate
body which discovers a problem concerning overseas corruption and reports it to the SFO, in appropriate circumstances the SFO might agree to a civil settlement in lieu of prosecution, or agree to accept a plea of guilty to a lesser charge than might otherwise be brought. The overall tenor of the guidance was one of encouragement to
corporates
to self-report, on the basis that there were considerable advantages to be gained by doing so. Whilst there was no guarantee that self-reporting would improve the company's chances of avoiding prosecution, it would be regarded as a step in the right direction.
i) the Board of the
corporate
was genuinely committed to resolving the issue and moving to a better
corporate
culture;
ii) the
corporate
would work with the SFO on the scope and handling of any additional investigation it considered to be necessary;
iii) at the end of the investigation (and assuming acknowledgment of a problem) the
corporate
would be prepared to discuss resolution of the issue on the basis, for example, of resolution through civil recovery, a programme of training and culture change, appropriate action where necessary against individuals and (at least in some cases) external monitoring in a proportionate manner;
iv) the
corporate
understood that any resolution must satisfy the public interest and must be transparent.
corporate."
However, in reflection of a policy instituted by the then Director of the SFO, Richard Alderman, they stated that the SFO wanted to settle cases that satisfied the criteria set out in paragraph 4 of the Guidelines civilly wherever possible. Paragraph 24 reinforced the message that self-referral would be in the best interests of the
corporate;
it pointed out that if the SFO discovered corruption for itself, it would regard the failure to self-report as a negative factor, increasing the prospects of a criminal investigation followed by prosecution and a confiscation order.
corporate's
professional advisers at the
corporate's
own expense, though it promised to look at this in a proportionate manner. Paragraph 12 stressed the importance of document recovery, analysis and preservation, and stated that electronic searches would be needed. Paragraph 13 indicated that the SFO would want to be involved in regular update discussions concerning the progress of any investigation. Paragraph 14 made it plain that the SFO would expect to discuss the results of the investigation with the
corporate
and its professional advisers before proceeding to negotiate any settlement. Anyone reading the 2009 Guidelines could be in no doubt that complete openness with the SFO about the results of the
corporate's
own investigation was an essential ingredient of the process.
corporate
will not want to approach it unless it has decided, following advice and a degree of investigation by its professional advisers, that there is a real issue and that remedial action is necessary. However, it then goes on to say that there may be earlier engagement between the advisers and the SFO "in order to obtain an early indication where appropriate (and subject to a detailed review of the facts) of our approach," and adds that the SFO would find this helpful, though it is ultimately a matter for the
corporate
and its advisers. That ties in with the reference in paragraph 4 of the Guidelines to the SFO being satisfied at the inception of the discussions that at the end of the investigation, the
corporate
would be prepared to enter into discussions to resolve the matter by a civil settlement.
corporate
would not be regarded as having self-reported (and thus could not rely on any of the potential advantages that this conferred) unless and until it had made a formal report to the SFO, although others espoused the view that
corporates
such as ENRC who had already embarked on a process of early dialogue with the SFO in reliance upon the 2009 Guidelines should not be disadvantaged by the changes.
corporation
concerned contemplating that there was a real prospect that it would be prosecuted. Indeed, that concern could be the very reason for its approach to the SFO with the objective of ameliorating its position, so far as that were possible. The clearest illustration of this is the scenario in which a
corporation
has already uncovered evidence of corruption which it decides to report to the SFO itself, instead of waiting for it to be uncovered.
THE DISPUTED DOCUMENTS
Category 1
Category 2
Category 3
Corporate
Governance Committee and/or the ENRC Board on 14 and 15 March 2013.
Category 4
THE CLAIM FOR LEGAL PROFESSIONAL PRIVILEGE
nature,
quality and content of the evidence supporting the claim for privilege. The evidence should be specific enough to show something of the deponent's analysis of the documents and the purposes for which they were created, preferably by reference to such contemporaneous material as it is possible for him to refer without disclosing the very matters which the claim to privilege is designed to protect. In this case, the evidence is not of the highest quality, but Mr Lissack has asked the Court to make allowance for the difficulties that ENRC has encountered in obtaining evidence to support its claim for LPP, which he submitted were not of its own making.
natural
tendency on the part of even the most honest witness to put a subconscious gloss on their version of history that supports the position they are now adopting.
THE RELEVANT LEGAL PRINCIPLES
Litigation privilege
(1) Litigation is in progress or reasonably in contemplation;
(2) The communications are made with the sole or dominant purpose of conducting that anticipated litigation.
(3) The litigation must be adversarial, not investigative or inquisitorial.
See Three Rivers (No.6) per Lord Carswell at [102].
"litigation privilege… is based on the idea that legal proceedings take the form of a contest in which each of the opposing parties assembles his own body of evidence and uses it to try to defeat the other, with the judge or jury determining the winner. In such a system each party should be free to prepare his case as fully as possible without the risk that his opponent will be able to recover the material generated by his preparations."
Likewise, in Wheeler v Le Marchant (1881) 17 Ch D 675, which concerned reports obtained by solicitors from surveyors and estate agents in the course of earlier proceedings unconnected with the relevant litigation, Cotton LJ said:
"hitherto such communications have only been protected when they had been in contemplation of some litigation, or for the purpose of giving advice on obtaining evidence with reference to it. And that is reasonable, because then the solicitor is preparing for the defence of bringing the action, and all communications he makes for that purpose, and the communications made to him for the purpose of giving him the information, are, in fact, the brief in the action, and ought to be protected."
"in my judgment we should start from the basis that the public interest is, on balance, best served by rigidly confining within narrow limits the cases where material relevant to litigation may be lawfully withheld. Justice is better served by candour rather than suppression."
That was the basis for the requirement that the communication or document should be for the "dominant purpose" of the contemplated litigation. In Balabel v Air India [1988] Ch 317 at 332A Taylor LJ spoke of the need to "re-examine the scope of legal professional privilege and keep it within justifiable bounds". Lord Scott in Three Rivers (No 6) suggested at [29] that in the light of developments in civil procedure that encourage more openness between the litigating parties, it may be time for a new look at the policy justification for this limb of LPP. That review has not yet taken place, but those judicial observations underline the need for the Court to be vigilant to avoid extending the ambit of the privilege beyond its current recognised confines.
"Whether or not litigation is reasonably in prospect is an objective question on which, again, the views of any deponent are not necessarily conclusive, see Guinness Peat Properties Ltd v Fitzroy Robinson Partnership [1987] 1 WLR 1027."
That approach is consistent with the test as set out by Lord Carswell in Three Rivers (No 6) referred to above.
"One has to be careful about the use of the phrase "brought into existence for the purpose of the conduct of the litigation," as a distinction should be drawn between bringing a document into existence for the purpose of conducting litigation by a party on the basis that the document will not be shown to the other party, unless there be an express waiver, and a document brought into existence during the course of litigation for the purpose of settling the litigation, which is intended to be shown to the other party. Properly characterised, it is not correct to say that a document is brought into existence for the purpose of conduct of litigation, and so is privileged from production, if it is brought into existence, albeit to try and settle the litigation, but for the purpose of being shown to the other side."
I respectfully agree with and adopt that analysis, which must apply with equal force in a situation such as this, where litigation has not commenced.
Legal advice privilege
corporate
entity. Communications between clients and third parties, such as professional advisers who are not lawyers, are not subject to legal advice privilege. Interposing a lawyer in the chain of communication will not improve the client's chances of claiming legal advice privilege.
corporate
entity, legal advice privilege attaches only to communications between the lawyer and those individuals who are authorised to obtain legal advice on that entity's behalf. Communications between the solicitors and employees or officers of the client, however senior in the
corporate
hierarchy, who do not fall within that description will not be subject to legal advice privilege.
"The principle is that if an employee is not authorised to communicate with the company's solicitors for the purpose of obtaining legal advice, then that communication is not protected by legal advice privilege. We do not find this principle exceptional. When a company retains solicitors for legal advice, the client must be the company. But since a company can only act through its employees, communications made by employees who are authorised to do so would be communications made "on behalf of his client". The only relevant issue is whether the communication is made for the purpose of obtaining legal advice, and if so, the communication falls within the privilege provided the other requirements of the privilege are present, viz, that the communications are confidential innature,
and the purpose of the communication is for the purpose of seeking legal advice. Authorisation need not be express; it may be implied, if that function is related to or arises out of the relevant employee's work."
"… documents communicated to the solicitors of the defendants by third parties, though not communicated by such third parties as agents of the clients seeking advice, should be protected, because those documents contained information required or asked for by the solicitors, for the purpose of enabling them the better to advise their clients." [emphasis added]
Cotton LJ made the following pertinent observations (at 684-685):
"it is said that as communications between the client and his legal advisers for the purpose of obtaining legal advice are privileged, therefore any communication between the representatives of the client and the solicitor must also be privileged. That is a fallacious use of the word "representatives". If the representative is a person employed as an agent on the part of the client to obtain the legal advice of the solicitor, of course he stands in exactly the same position as the client as regards protection, and his communications with the solicitor stand in the same position as the communications of his principal with the solicitor. But these persons were not representatives in that sense. They were representatives in this sense, that they were employed on behalf of the clients, the Defendants, to do certain work, but that work was not communicating with the solicitor to obtain legal advice. So their communications cannot be protected on the ground that they are communications between the client by his representatives and the solicitor." [emphasis added].
corporate
client, "communications from an employee are different", Longmore LJ (delivering the judgment of the court) stated (at 1574G-H) that information from an employee stands in the same position as information from an independent agent. He pointed out that it may be a mere matter of chance whether a solicitor, in a legal advice privilege case, gets his information from an employee or an agent or other third party. He added "it may also be problematical, in some cases, to decide whether any given individual is an employee or an agent and undesirable that the presence or absence of privilege should depend on the answer."
corporations.
Various interested parties, including the Law Society, were given permission to intervene and make submissions.
corporate
context of direct communication of information by an authorised employee (or ex-employee) to the
corporation's
legal adviser had not arisen and was not dealt with in Three Rivers (No. 5). RBS also sought to confine that case to its own particular facts, which was the way in which the Singapore Court of Appeal ultimately dealt with it in the Skandanivska case. Hildyard J concluded (at [54] - [60]) that the decision in Three Rivers (No 5) was based on principles of general application, which (despite considerable criticism in some academic circles) remain binding law in England and Wales. He said, and I agree, that this was confirmed by the way that the decision was attacked by counsel and analysed by the House of Lords in Three Rivers (No 6).
corporation,
the communication with the lawyer must be to or from a person who is authorised to seek and receive legal advice on behalf of the
corporation,
and the communication must be for the purposes of, or in the course of that person giving or receiving legal advice. Such a communication is to be distinguished from the preparatory work of compiling information undertaken by persons with no authority to seek or receive legal advice, for the purposes of enabling the
corporate
client to seek and receive such advice. That is so whether the preparatory work is conducted by the client or by the lawyer.
"When addressing the question of which communications with the lawyer attract legal advice privilege, the courts will only regard as privileged those communications with officers or employees expressly or impliedly authorised by the company (a) to give instructions to the lawyer and (b) to seek and receive his legal advice. This is ultimately a question of attribution, namely which acts of which employees are to be attributed to the company. This, it is suggested, is the proper implication of Three Rivers 5. Although on the unusual facts of Three Rivers 5 the people within these two categories i.e. (a) and (b) above were seemingly held to be the same, there is no principled reason why this should be so and in acorporate
context they will very often - perhaps usually - not be the same."
corporation,
the person giving the instructions to the lawyers may not necessarily be the same as the person or persons who want to receive the advice. In-house counsel may well have authority to instruct external lawyers to advise the company, but the advice will not lose its privileged status because it is sent or given to the Board of Directors directly instead of via counsel. The Board would be the manifestation of the "client" for these purposes, whereas counsel employed by the company would be acting as the company's (and the Board's) agent for the specific purpose of instructing the external lawyers. In that example, both the Board and in-house counsel will be authorised to communicate with the external lawyers for the purpose of obtaining the legal advice, and both the instructions and the advice would be privileged.
corporate
client to be in any better position than an individual just because a
corporation
can only act through its officers and employees. One cannot treat the act of the employee in passing the information to the lawyer as an act of the company, for the purposes of attracting legal advice privilege, just because, for example, the directors of the company have authorised the employee to do it. The employee is authorised to hand over the information, but he does not thereby become part of the confidential lawyer/client relationship; his act in handing it over cannot be treated as a communication by the company with its lawyers for the purposes of seeking or receiving the legal advice.
corporate
client is communicating with its lawyers in confidence in order to obtain legal advice. Matters would obviously be different if the client (whether individual or
corporate)
delegated the responsibility for obtaining legal advice to a senior employee, or group of employees, such as the BIU in the Three Rivers case, who then communicated with the lawyers for that purpose.
corporation's
lawyer does not constitute that employee the client or a recognised emanation of the client". I agree. Once matters are looked at from that perspective, it is obvious that there is even less justification for treating as "the client or a recognised emanation of the client" for these purposes an employee of a subsidiary, or someone who has ceased to work for the client, or someone who never worked for the company at all but worked for one of its customers or suppliers. The information coming from the employee to the lawyer cannot be equated with instructions or information emanating from the client unless he has been tasked by the client with seeking or obtaining the legal advice on the client's behalf.
corporation
can be treated for the purposes of legal advice privilege as being, or being a qualifying emanation of, the "client". That issue does not arise in respect of any of the classes of documents with which I am concerned.
corporate
body, one would expect the requisite authority to obtain legal advice on the company's behalf to be vested in the Board of Directors, although they might well delegate authority to another group or person. It might also be persuasively argued that the company's in-house lawyers or general counsel would have the necessary authority, by virtue of their office, to seek and obtain legal advice from external lawyers on behalf of the company. Whether they, or any other individual employee or group of employees had such authority in a given case, is a question of fact to be determined on the evidence.
"without knowing the identity of the person with whom [the lawyer] communicated in any given case it is not possible to say whether that person is properly to be regarded as his client for these purposes."
The anonymity of certain of the sources of the information deposed to by Mr Spendlove creates a serious problem for ENRC in that regard.
Privilege attaching to lawyers' work product
"The principle is accurately summarized by Bray:… all memoranda or writings of any kind made by the solicitor, whether for his own use in his client's business, or for the client's use, are within the privilege and stand in all respects on the same footing as actual communications between solicitor and client".
THE FACTS
corporation
called First Quantum Minerals and ENRC that eventually settled at a time when ENRC was in dialogue with the SFO, which gave its approval to the settlement.
corporation
to take in such circumstances to safeguard its position, and specifically to protect itself from any exposure to liability or sanction that might arise under the Proceeds of Crime Act 2002 on proof that there had indeed been criminal activity by the others with whom it had had dealings. I have taken those steps into account in assessing whether criminal proceedings were reasonably in contemplation at any material time, but I do not consider that they advance ENRC's case. In August 2010, the recorded view of ENRC and its advisors were that the allegations of wrongdoing made against those from whom it had acquired Camrose were "in large part unsubstantiated, but bearing in mind the low threshold for suspicion it is not possible to discount them completely." I have seen no evidence to suggest that that view changed at any material time.
"The internal investigation at SSGPO relates to conduct that is potentially criminal innature.
Adversarial proceedings may occur out of the internal investigation, and in our view, both criminal and civil proceedings can be reasonably said to be in contemplation. There is a possibility that this view may be challenged by third parties in the future, but if this is accepted, litigation privilege will apply."
In the absence of any documents evidencing consideration of the contents of that letter, it is reasonable to infer that those to whom this letter was addressed accepted Mr Gerrard's advice at the time, and therefore believed that they could make out a case for the documents generated during the Kazakh investigation being subject to LPP, but they also knew that there was a chance that the claim to privilege would not be accepted if it were challenged.
corporate
citizens. The SFO had no reason to doubt that Mr Ehrensberger meant what he said, and I have seen no evidence that would cast doubt on it either. Similar assurances were given by Mr Gerrard and Mr Ehrensberger to the SFO at subsequent meetings.
corporate
self-reporting process. This was the first time at which there was any mention in inter-party correspondence of the report being privileged. Dechert said in the letter that any report it would submit would be submitted "under a limited waiver of LPP" for the purposes of the
corporate
self-report only. When this was considered internally by the SFO, one of the senior SFO officials, Mr Rappo, made it clear that he did not believe that ENRC had entered the self-reporting process, because they had not yet made any report of wrongdoing. By then, the change in policy that I have already described had come into effect following the departure of Mr Alderman and the arrival of Mr Green as Director of the SFO. Mr Rappo was not particularly surprised by the claim to LPP; he referred to the fact that companies in ENRC's position often took that stance. He identified the issue for the SFO as being whether (i) they accepted the claim of privilege; (ii) they entered into an arrangement with ENRC pursuant to which the SFO would not use the contents of any disclosed report for the purposes of any prosecution; (iii) they stated that nothing was guaranteed, and the SFO did not accept the claim of limited waiver or (iv) they simply told ENRC to go away.
THE CLAIM FOR LITIGATION PRIVILEGE
nature
and purpose from any other criminal investigation. Of course, non-cooperation could lead to criminal proceedings and criminal sanctions, but it is no part of ENRC's case that it planned to be uncooperative in the event of a "Dawn Raid" and that criminal proceedings were envisaged on that account. On the contrary, and as one might expect of a responsible
corporation,
it took steps to make sure that its staff knew exactly what to do and that they would afford the investigators full co-operation.
corporation
would want to start carrying out its own investigation, and that it would be unrealistic to deny litigation privilege to the fruits of such an investigation on the basis that it was premature.
corporate
to be seen to be taking steps with a beneficial compliance effect. Likewise, it was unsurprising that ENRC would not wish to draw attention to the fact that the review was initiated to enable it to obtain advice and assistance in connection with anticipated SFO action. That point only holds good so far as documents that would be seen by persons outside the ENRC group and its advisers are concerned. The absence of internal documentation supporting the proposition that the review was designed to generate documents for the purpose of obtaining advice about the defence of anticipated criminal proceedings is less easy to explain, if that really was the dominant purpose of the exercise.
THE CLAIM FOR LEGAL ADVICE PRIVILEGE
corporate
client. The evidence gathered by Dechert during its investigations was intended by ENRC to be used to compile presentations to the SFO as part of what it viewed as its engagement in the self-reporting process. If and to the extent that it was also intended by ENRC to take legal advice on the fruits of Dechert's investigations, and that was one purpose of making the interview notes, the documents formed part of the preparatory work of compiling information for the purpose of enabling the
corporate
client to seek and receive legal advice, and are not privileged.
nature,
even if legal advice was being sought and was given in the exchange. Mr Ehrensberger may well have felt that he was acting as a lawyer for most of the time that he was the Head of M&A, because M&A work will often have a legal dimension to which he could bring the perspective of a qualified lawyer. But that is not good enough for privilege to attach to the emails; at the time of this exchange, his professional duty was not to act as a legal adviser to ENRC. If the person sending the information to Mr Ehrensberger had wanted privileged legal advice he should have sent it to General Counsel. These documents are not privileged.
DISCRETION
The use of the Part 8 Procedure
nature. Section 2(9) itself identifies the key issue as being whether the documents are documents which ENRC "would be entitled to refuse to disclose or produce on grounds of legal professional privilege in proceedings in the High Court". It cannot be sensibly suggested that the High Court is the inappropriate forum for determining that issue. There is precedent for such a course being taken in similar circumstances, albeit that the documents over which privilege was claimed were in the hands of a third party: see Price Waterhouse (a firm) v BCCI Holdings (Luxembourg) SA and others (above).
Mr Gerrard's authority
i) It was submitted that unauthorised communications by Mr Gerrard could not fairly form part of the Court's assessment of whether the necessary requirements for litigation privilege have been established;
ii) if the SFO knew or ought to have known that the communications were unauthorised, and yet sought to rely upon them, it was contended that this was a factor militating against the exercise of the discretion in favour of granting the declaratory relief that it seeks.
Other considerations
"it must be wrong in principle, when a litigant has succeeded in making good his case and has done nothing to disentitle himself to relief, to deny him any remedy unless, at any rate, there are extremely strong reasons in public policy for doing so."