It’s not just the question of whether the privilege belongs to a company or a director that matters but whether it exists at all.
Not for the first time David Green, the head of the UK’s Serious Fraud Office (SFO) has fired a warning cannon shot over the bows of big business, saying in a recent Times article that he “is prepared to challenge head-on the claims of privilege that we believe are ill-founded”.
His gripe is that companies are using the cloak of privilege as it attaches both to advice given at the relevant time by in-house counsel and more particularly to internal investigations conducted after the event to withhold material from the SFO which they consider should be disclosed. Ominously, Green is talking about finding a suitable claim for privilege to challenge.
Challenge to Privilege in the US
At the same time comes a recent and successful challenge to the scope of legal privilege attaching to internal reports in the United States. I am grateful to Hebert Smith Freehills for bringing this to my attention in their briefing note. The case (Wultz v. Bank of China, 2015 WL 362667 ) was heard in The US District Court for the Southern District of New York in January 2015.
In the case, the Court rejected a claim made on behalf of the Bank of China that documents gathered during an internal investigation were privileged either under client attorney privilege or (as we would recognize it in the UK) under litigation privilege.
In January 2008, Bank of China had received a demand letter relating to allegations that the Bank had executed wire transfers on behalf of a terrorist organisation. The letter contained an express threat of proceedings. Some eight months later in August 2008, proceedings were duly served. In the interim, the bank had carried out an internal investigation—but, crucially, this had not been directed or supervised by a lawyer.
The Court held that a mere expectation that the work product would be provided to a lawyer for legal advice was insufficient. That would surely have been the result in the UK as well.
The Court went on, though, to reject what the bank must have felt was its stronger ground, i.e. that the internal report had been prepared “in anticipation of litigation” and should therefore attract privilege for that reason. After all, a specific threat of litigation had been made in this case. By some fairly tortuous logic the Court asked itself whether the bank might not have commissioned such an internal report even in the absence of the threat of litigation. Having concluded that it might very well have done so (for example with reference to its obligation to report the allegations to its regulator), the Court decided to reject the claim for privilege.
Lesson for the Rest of us
The moral here, as the authors of the briefing note (themselves lawyers!) make clear, is to ensure that all internal reports are properly commissioned and supervised by lawyers so as to attract privilege. Yet, it is precisely this “good practice” which David Green is criticising in cases where he considers it is being used to obstruct the SFO’s pursuit of justice. Expect more fire works here.