The Case of AL- Disclosure Rights and Privilege in the Age of DPAs

The Case of AL- Disclosure Rights and Privilege in the Age of DPAs

Blog WilmerHale W.I.R.E. UK

On 19 April 2018 the High Court handed down its judgment in the case R (on the application of AL) v Serious Fraud Office. The Claimant (AL) is a current defendant in criminal proceedings brought by the SFO. AL sought to judicially review the SFO’s failure to initiate breach proceedings in relation to its deferred prosecution agreement (“DPA”) with the company XYZ. AL argued that the SFO should have instituted breach proceedings against XYZ for its failure to disclose potentially relevant material he had sought in support of his defence. XYZ had claimed that the material was privileged.

The High Court’s judgment, whilst ultimately refusing AL’s claim, represents another example of how courts will apply the test for litigation privilege to internal employee interviews, conducted in connection with perceived criminal or regulatory risk. The Court admonished the SFO for failing to properly scrutinise XYZ’s privilege claim, in the discharge of its obligation to protect AL’s fair trial rights. Whilst the Court’s application of privilege law is consistent with recent judgments, it does illustrate how the prosecution of individuals, connected with DPAs, will raise novel legal issues. In response to the judgment, the SFO is likely to be far more robust in the face of privilege claims raised by cooperating companies. Conversely, cooperating companies should assume that litigation privilege is unlikely to apply, and think carefully before claiming it.

The Facts of the case

In 2012 XYZ initiated an internal investigation into whether its executives had paid bribes. As part of that investigation XYZ’s lawyers interviewed AL (and three other employees). The purpose of the interviews was to enable XYZ to decide whether to make a self-report to the SFO, which it did shortly after the interviews had been completed.

XYZ and the SFO subsequently entered into a DPA, formally approved at a hearing on 8 July 2016. Under its terms, XYZ was required to continue cooperating with the SFO in all matters relating to the underlying conduct. Specifically, XYZ was required to “disclose all [such] information and material in its possession, custody or control, which is not protected by a valid claim of legal professional privilege or any other applicable legal protection against disclosure”.1

In parallel with securing the DPA, the SFO continued its investigation in to certain individuals, including AL, and requested from XYZ the notes of their interviews. In response, XYZ asserted both legal advice and litigation privilege over the notes but agreed to provide an oral summary of the interviews during a “proffer session”. In delivering these summaries, XYZ’s lawyers declared that the oral proffer was not to be taken as a waiver of privilege. The proffers were taped and subsequently transcribed into written summaries of interview. XYZ made further self-reports to the SFO both before and after the proffer session.

Eventually AL was charged, and the proceedings were sent to the Crown Court. In performance of its disclosure obligations the SFO provided AL with the written summaries of interview. Unsurprisingly, AL sought the full records and notes of the interviews. In response to the SFO’s requests, XYZ refused to provide the documents on grounds that they were privileged. The documents were the subject of a disclosure application in the Crown Court. The judge ruled that the SFO did not have an obligation to disclose the documents (pursuant to section 8 CPIA) because they were not in its possession, and hence could not be considered “prosecution material” as defined under the Act. However, the Judge expressed misgivings about the claim, made by XYZ and relied on by the SFO, ¬¬that the oral proffers amounted to an accurate summary of the full interview notes. He noted that XYZ’s lawyers would have been neither in a position to, nor inclined to, assess the adequacy and accuracy of the summaries from the perspective of AL’s defence.

Following the hearing the SFO made a further attempt to secure the interview notes, requesting XYZ to reconsider its privilege claim in light of recent case law (namely ENRC2  and The RBS Rights Issue Litigation3). XYZ however remained unmoved by the request. In maintaining its privilege claim over the documents, it observed that the lawyers’ notes included specific instances of advice being given during the interview and recorded the lawyers’ impressions, including associated comments and follow-up points. Thereafter the SFO refused to compel XYZ to produce the full interview notes. By judicial review, AL challenged the SFO for not formally compelling XYZ to produce the notes and not pursuing the company for a breach of the DPA on account of the non-disclosure.

The High Court’s Judgment

The Court dismissed AL’s application, ruling that the Crown Court proceedings left open adequate alternative remedies to resolve the issues raised by the judicial review. The Crown Court was tasked both to consider disclosure issues, under the Criminal Procedure and Investigation Act 1996 (“CPIA”), and to ensure that the defendants had a fair trial. An adequate alternative remedy was available through section 2 of the Criminal Procedure (Attendance of Witnesses) Act 1965, under which the Crown Court had the power to compel XYZ to produce the interview notes and, in doing so, could assess and resolve the privilege claim. Subject to a material error by the prosecutor which could not adequately be addressed by the Crown Court, the High Court held that it could not intervene in the circumstances.

Notwithstanding its ruling that alternative remedies were available, the Court went on to consider the other issues raised by the application.

The Court rejected the SFO’s claim that it had a very broad margin of error, equivalent to its prosecutorial discretion, when considering whether to initiate DPA breach proceedings against XYZ. The exercise of the SFO’s discretion had to be considered in the context of the disclosure dispute. Having commenced prosecution against AL, the SFO had a duty to ensure that the proceedings were fair. The Attorney General Guidelines on Disclosure prescribe that prosecutors must make reasonable steps to procure relevant materials from third parties. Furthermore, under the Guidelines the standard of reasonableness “assumes persistence and a willingness to deploy procedural force in the face of opposition.”4  Accordingly, the Court found that the SFO had been wrong to claim that its decision on whether to breach XYZ was afforded a broad margin of appreciation which could not be interfered with.

The Court rejected the plausibility of XYZ’s assurance that the interview notes had no incremental value over and above the oral proffers and other materials it had provided. The proffer of AL’s interview, which had lasted 15 hours, took up only five pages of text. Moreover, it acknowledged that a complete note would assist the trial court to understand the context of an interviewee’s response. The Court was persuaded, on the facts, that the incremental information contained in the full interview notes would be relevant to AL’s case.

The merits of XYZ’s privilege claim and the SFO’s reliance on it

Most significantly, the Court scrutinised the SFO’s position in response to XYZ’s privilege claim, and assessed the merits of that claim. Whilst these comments are obiter, they reinforce the position adopted in other recent judgments.

  1. The SFO argued that because XYZ’s privilege claim was “not obviously invalid” its decision not to challenge the claim could not be the subject of a judicial review. The Court expressed skepticism over whether that formulation would be an appropriate response to a public law argument. Instead the Court suggested that, in discharging its public function, the SFO was obliged to conduct a proper, detailed analysis of the merits of the privilege claim. The Court noted that, “Regulatory decision making cannot proceed upon the basis of cursory tests of obviousness”.
  2. Having observed that the relevant law relating to legal privilege was well settled (citing Three Rivers, RBS and ENRC), the Court expressed clear misgivings that, on the application of that law, that the notes of interview would be protected.
    1. Legal advice privilege would not ostensibly apply, as the individuals interviewed were providers of information as employees, not as clients (as per Three Rivers).
    2. Litigation privilege was unlikely to be engaged, because, the purpose of conducting the interviews had been to determine whether there was evidence of any breach of the law, and hence whether a self-report should be made. This purpose was too remote from the conduct of contemplated litigation.
    3. The presence of “lawyers’ musings” in the notes were not capable of cloaking the whole note in legal privilege, because any genuinely privileged entries could be redacted in the usual manner.
  3. The oral proffers likely constituted a waiver of privilege in relation to the interview notes (the proffers being a summary of the interviews), and therefore “(prima facie) [opened] the door to disclosure of the underlying interview notes”. The only competing argument the Court could envisage, was that the waiver had been for the exclusive use of the SFO. Given it was obvious that the defendants would potentially be prosecuted, and that any summary of the proffer would fall to be disclosed in such prosecution, a waiver for the SFO’s exclusive use could not have been contemplated.

Lessons learned?

This decision reinforces the Courts’ current application of legal privilege in the context of internal enquiries conducted in advance of criminal / regulatory investigations. The Court of Appeal will review the present approach when it hears the ENRC case in July. The most interesting question it will consider, is how “contemplated litigation” should be interpreted in the context of the circumstances where companies are trying to gather facts before deciding whether to cooperate with the SFO. If the Court’s panel agrees with the High Court, it is difficult to envisage how any company, when considering to adopt a cooperative posture in the face of potential enforcement action, could realistically claim litigation privilege.

The decision in the present case also raises issues which are likely to be a common feature of criminal proceedings connected with a deferred prosecution agreement. In future, the SFO will need to scrutinise rigorously any privilege claim made by a DPA party, where the material could subsequently be the subject of a reasonable disclosure request. Reliance on an ostensible or potentially valid claim to privilege may not be adequate when discharging its disclosure obligations. Instead it will need to test the merit of any claim and consider how an individual defendant’s fair trial rights can best be secured. Furthermore, where there are reasonable reservations about the privilege claim, the SFO will need to be prepared to initiate breach proceedings.

It seems likely that the SFO will push back on oral proffers being suggested as an alternative to the underlying documentary evidence. Even where it is receptive to the idea, companies and their lawyers should assume that a proffer may amount to a waiver of privilege over the materials on which the proffer is based, especially where related future criminal proceedings are reasonably foreseen.

Finally, this judgment prompts a reassessment of what disclosures should be made to individuals when interviewed by a company’s lawyers. The traditional approach is to tell the subject that the interview is privileged, and the privilege is the company’s to waive. In a U.K. context, where the conditions for litigation privilege are unlikely to apply, is this misleading? An individual might reasonably assume that the company will not waive its privilege, or may have been told that the interview will be conducted by lawyers, in order to protect the information which is disclosed. These facts could contribute to the grounds on which the interview is sought to be excluded5 as evidence in a future criminal trial.


1 Para. 62, Preliminary Judgment of Sir Brian Leveson.

2 Serious Fraud Office v ENRC [2017] EWHC 1017 (QB).

3 [2016] EWHC 3161 (Ch).

4 Para. 86.

5 Under section 78 Police and Criminal Evidence Act 1984

More from this series