Organisations often have to undertake internal investigations. These can arise in many situations. They can, for example, be to investigate some suspected fraud or wrongdoing that has been uncovered, to investigate the causes of an accident in the workplace, to investigate some allegedly improper conduct by an employee within the business or where money or valuable property has gone missing. They can also be in response to an investigation or enquiry launched by a regulator or prosecuting authority.
Undertaking an early and detailed investigation can have a number of advantages. It enables the organisation to work out exactly what has happened and who and what is involved. This means that effective steps can be taken to stop further loss or damage, to identify wrongdoers, to recover misappropriated funds, to protect employees and customers, to manage potential reputational issues, to deal effectively with insurers and to undertake a proper assessment of the organisation's potential liability. In other words, it gives the organisation the tools it needs to get back on the front foot and to take a proactive approach to the problem. In regulated sectors, it enables the organisation to deal effectively with its regulators and to demonstrate robust governance.
An investigation report, and information obtained during an investigation, can however be a double edged sword. Unless protected by legal or litigation privilege, the report itself, and documents produced for the purposes of the investigation, could be disclosable in litigation or to prosecutors or regulators. If the report contains damaging information, this could seriously undermine the organisation's ability to defend its position.
Where legal or litigation privilege applies, documents are protected from disclosure. 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. The Court therefore found that the company had 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 make sure that material produced during the investigation and the investigation report are protected and that the investigation itself does not become a hostage to fortune.
First published by Connect, November 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.