In-house lawyers wishing to conduct internal investigations should breathe a sigh of relief following the recent appeal court ruling against the Serious Fraud Office, writes Lewis Crofts, MLex’s editor-in-chief.

It’s a been a turbulent time, after a High Court ruling had initially cast doubt over whether such an investigation could end up making matters worse for a company. But a Court of Appeal ruling in September (Director of the Serious Fraud Office v Eurasian Natural Resources Corporation [2018] EWCA Civ 2006) seems to have redressed the balance. For some, the court may have even presented a chance to expand the law on legal privilege.

The fight not only touches on privilege, but also strikes to the heart of the Serious Fraud Office (SFO), the UK’s anti-fraud watchdog.

And behind the questions over protecting in-house lawyers is a long-running tussle between Eurasian Resources Group’s UK unit and the SFO. Even after the appeal ruling, the tussle continues to give the SFO and its new boss headaches.

There have been many twists in the SFO’s struggles with Eurasian National Resources Corporation (ENRC) since it opened a probe in 2013 into alleged corruption by the miner in Kazakhstan and in countries in Africa.

And the latest twist in the saga will see a retired High Court judge appointed to oversee an investigation into a missing notebook belonging to a former SFO investigator, who had scrutinised claims involving ENRC.

This comes at a time when the SFO – with new director Lisa Osofsky just settled in after the departure of David Green – would be expected to reach a decision on whether or not to bring criminal charges against the company and/or its executives.

So, there is more at stake for the regulator than just the wrangle over privilege.

The barrage of legal claims lodged against the SFO are bound to slow its probe down. ENRC has denied any wrongdoing and no charges have been brought against the miner or any individuals connected with it.

Costs

Most recently, the two sides met at the High Court in October, where ENRC failed in a bid to claw back hefty legal costs run up as part of an ongoing corruption probe into the miner by the UK’s fraud prosecutor.

The hearing was linked to a now shelved bid by the company to apply for pre-action disclosure against the SFO. The procedure is used by claimants to obtain documents from a defendant before the start of any formal proceedings.

The disclosure claim, which has been adjourned following the appointment of the judge, was part of an attempt by ENRC to allow it scrutiny of the SFO’s probe.

ENRC claimed it was owed £47,000 in costs incurred since late September in putting together a witness statement and court documents related to its disclosure action.

But Judge Sarah Falk said she could not award costs, saying the issue should be dealt with fully once the disclosure claim is settled. At the same time, she voiced criticism of the SFO for a slow response in addressing ENRC’s disclosure action.

The legal action largely centres on ENRC’s claims that the SFO acted unlawfully in its dealings with the company’s former lawyer, Neil Gerrard, from law firm Dechert. ENRC has claimed that Gerrard used the company to generate £16.3m in fees over two years.

It has further claimed that the SFO was complicit in Gerrard leaking confidential information about ENRC to the agency and to the media. Gerrard’s motive was to ‘entice’ the SFO to spark a criminal probe into ENRC, court documents say.

Gerrard and Dechert deny the allegations.

Judicial review

ENRC alleges ‘serious wrongdoing’ by the SFO in its probe, and has applied for a judicial review of the SFO’s investigation. 

The filing claims the SFO acknowledged that the concerns should be looked into, but that the SFO failed to take basic steps to ensure the review was independent. ENRC complained that the SFO wanted to commission law firm Eversheds, which it instructed in a recent Court of Appeal claim involving legal privilege.

‘It is hardly an answer to appoint, as an external independent investigation team, the firm of solicitors who handled the proceedings in which these problems arose and were not spotted,’ ENRC said in the court filing.

The SFO’s decision to appoint a judge to look into the claims has temporarily headed off this judicial review, with the judge’s internal probe expected to take three months once work starts.

In early October, the SFO announced that it wouldn’t fight a Court of Appeal ruling that overturned a lower court’s order to the company to hand over documents linked to the probe. ENRC claimed the documents were covered by client-lawyer confidentiality.

Appeal judge Sir Brian Leveson ruled that the majority of the documents in question were covered by litigation privilege. The judge said that criminal proceedings were on the cards when the SFO and ENRC were locked in discussions in 2011, before the SFO opened its formal investigation.

‘The whole sub-text of the relationship between ENRC and the SFO was the possibility, if not the likelihood, of prosecution if the self-reporting process did not result in a civil settlement,’ the judgment said.

The ruling found that the original High Court judge was wrong to find that ENRC had intended to or agreed to share materials from the internal investigation with the SFO as part of a ‘self-reporting’ process.

Last May, the High Court ruled that ENRC should hand over the documents to the SFO, saying that ENRC’s expectation that the SFO would start a probe against it didn’t amount to a ‘reasonable’ anticipation of litigation.

The privilege judgment was a blow to the SFO, setting limits on its powers to demand company documents and calming companies’ fears – brought on by the lower court’s decision – that its ability to instigate internal investigations would be jeopardised.

It was also another painful reminder of the many thorns in the SFO’s side caused by its ENRC probe.

These wrangles are an unwelcome distraction for Osofsky, as she tries to lead the SFO forward, take on new cases and make her mark.

For more insight on data privacy and security and other areas of regulatory risk, visit the MLex Market Insight website.