Undertaking a comprehensive, thorough and timely investigation has many advantages. It enables the organisation to identify precisely what has happened and who and what is involved. This means that steps can be taken to prevent further loss or damage occurring, to identify wrongdoers, to recover misappropriated funds or other assets, to protect customers, to manage reputational issues, to deal effectively with insurers and to undertake an early assessment of the organisation’s liability. Put simply, it gives the organisation the information it needs to put itself on the front foot in terms of damage limitation, mitigation of loss and remediation. In regulated sectors, it enables the organisation to deal proactively with regulators and to demonstrate robust governance.
An investigation report, and the material gathered during the course of an investigation, can however be a double edged sword. Unless the report is protected by legal or litigation privilege, the report itself and documents produced during the investigation process might be disclosable in litigation or in the course of a criminal or regulatory investigation or prosecution. That means claimants, prosecutors and regulators might be able to gain access to the company’s confidential report and documentation. If the report, or material gathered through the investigation process, contains damaging information, this could seriously hamper the organisation’s ability to defend its position.
Where legal or litigation privilege applies, documents are protected from disclosure. Legal advice privilege applies to confidential communications passing between lawyer and client for the purposes of giving and receiving legal advice. Litigation privilege applies to communications passing between lawyers, clients and third parties where litigation is underway or is reasonably contemplated, and where the dominant purpose of the communication is the litigation. Where other professionals, consultants or employees are charged with undertaking an internal investigation, privilege will not apply and any report and documents prepared as part of the investigation process may be disclosable.
Privilege is therefore an important benefit. It enables clients who are facing potential litigation or prosecution to deal openly and transparently with their lawyers without the risk that their communications will have to be disclosed if litigation is actually commenced or if a prosecution is brought.
The concept of legal and litigation privilege in Jersey and Guernsey closely follows the English law concept. In a recent case in England involving the Serious Fraud Office (SFO), the English High Court caused considerable concern with a decision which appeared to narrow dramatically the scope of privilege in relation to internal investigations. The SFO had sought access to various documents which had been created by lawyers and accountants retained by a company undertaking an internal investigation into allegations of corruption and fraud in its overseas operations.
The company claimed the documents were protected by privilege as they were created in the course of an investigation in circumstances where a criminal prosecution was reasonably contemplated. The High Court disagreed, essentially finding that the documents had been created at too early a point in time when it could not properly be said that a prosecution was reasonably contemplated. The Court therefore ordered that the majority of the documents sought by the SFO were not protected from disclosure at all.
The company appealed. The Court of Appeal overturned the High Court’s decision finding that even though the internal investigation was commenced well before the SFO had launched its own investigation, there was a clear possibility at that early stage that criminal proceedings might be brought and the company had therefore commenced its own investigation for the dominant purpose of protecting its position in those proceedings. The company’s claim for privilege was therefore upheld.
The Court of Appeal’s decision is important. It has affirmed the protection afforded by litigation privilege in the context of internal investigations. It is critical, however, that early legal advice is obtained where an internal investigation is contemplated to ensure that material produced during the investigation and the report itself is properly protected and that the investigation itself does not become a hostage to fortune.