Privilege and Corporate Investigations
Tread with care
- A Board of Directors faced with information that raises regulatory issues or suspicions about corrupt practices might decide to conduct an internal inquiry and/or self-report. Equally, a company may become caught up in a criminal or regulatory inquiry and are required by investigators to produce relevant documentation. Can a corporate entity do the right thing but, at the same time, protect its own legitimate interests by the use of privilege? There are no easy answers.
Privilege against self incrimination
- On 6th February 2018, the Privy Council granted permission to appeal in respect of the long running Volaw v Attorney General of Jersey and Comptroller of Income Tax litigation. This case is of particular importance to trust companies who might get caught up in a criminal investigation that is focused on their client but are asked to provide documents that might expose the business to liability. The Jersey trust company has been served with compulsory Notices by Jersey’s public authorities. The Notices require the disclosure of relevant records for the purposes of an international tax inquiry. The trust company asked for an undertaking confirming that no action would be taken against it. No such undertaking was forthcoming. The trust company has therefore sought a declaration from the courts that compliance with the compulsory Notices would breach its privilege against self-incrimination.
- The Jersey Courts have ruled that the provision of documents, however incriminating they might be in respect of the person holding them, does not engaged the privilege. This case raises fundamental human rights issues and whether there is a material distinction between the right to silence and the production of pre-existing documents. The Privy Council has granted permission to appeal, clearly intent on clarifying the difficult case law in this area.
Legal Privilege
- The issue of legal privilege can arise in the context of the Board of Directors receiving information that is suggestive of corruption practices or a regulatory breach. The company will wish to act responsibility and will appoint lawyers to conduct an internal investigation with a view to self-reporting.
- The dilemma, both for the company and individuals, is that any internal investigation might generate incriminating material that may not be protected by legal professional privilege and thus would become disclosable or could otherwise be obtained by third parties in the event of civil proceedings or a criminal investigation.
- In Serious Fraud Office v Eurasian Natural Resources Corporation Limited [2017] 1 WLR 4205, the defendant company operated in the mining and natural resources sector in Africa and elsewhere in the world. The company instructed its lawyers to investigate its business activities in response to allegations of corrupt practices. The lawyers conducted a number of interviews with relevant witnesses. The English High Court ruled that the records of these interviews were not covered by privilege. Andrew J ruled that legal advice privilege could only arise if there was a communication between the client and their lawyer. In the context of a corporate entity, the “client” was the company and its authorized agents, namely the Board of Directors and In-House Counsel. An employee who worked in the accounts department or operated mining equipment in Africa had no authorisation to give instructions to the lawyer and therefore could not be the client. It follows that the notes of an interview with the accounts manager for example could not be covered by privilege, even if conducted by a lawyer. The English Court of Appeal are due to rule on the appeal in 2018.
- In, R v Jukes [2018] EWCA Crim 176, the defendant denied being responsible for health and safety at his place of work and, on that basis, pleaded not guilty to a health and safety offence. However, he had previously give a statement to the company lawyer during the course of an internal inquiry to the opposite effect – that he was indeed responsible for health and safety at the time of the workplace accident! The criminal court ruled the document admissible and that privilege did not apply. The defendant was convicted.
- It makes no difference if the company chooses to conduct an internal inquiry or is required to do so by a regulator. In Mrs Smith v SWM Limited [2017] JRC 026, the Jersey Regulator had required the defendant company to obtain an independent report in respect of business practices and investment advice given to low risk investors. Grant Thornton produced a report in 2015 for SWM that featured a review of eight investors, including Mrs Smith. Grant Thornton concluded that the advice in all eight cases was unsuitable.
- Mrs Smith commenced her civil action in 2016. SWM failed in its claim to legal privilege in respect of the Grant Thornton Report and were forced to disclose the Report to her. Mrs Smith’s will now call a Senior Partner from Grant Thornton to give evidence at trial.
Conclusion
- Conducting an internal investigation and self-reporting are not easy options. Being the subject of external inquiry can also be difficult. Privilege can be of assistance but only in particular circumstances. All the cases mentioned above are extremely fact sensitive. It is important to get early legal advice as to how best to proceed in order to achieve both proper corporate responsibility and the protection of legitimate interests.
Howard Sharp QC is instructed to act in the Volaw and Smith litigation.
